Beyond Centralised Logic: Rethinking Regulation for Decentralised Finance

Disclosure Statement: The author declares no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.ABSTRACTThis article critiques the European Union’s regulatory approach to decentralised finance (DeFi), which transposes traditional institutional oversight frameworks onto systems with fundamentally different architectures. DeFi protocols are non-custodial, pseudonymous, composable, and autonomously executed, making classical regulatory approaches structurally incompatible. Legal systems assuming identity, hierarchy, and discretionary control prove inadequate for supervising systems designed to eliminate such centralisation. Drawing on EU constitutional principles, regulatory theory, and jurisprudence, this article develops a dual-layer oversight model using Malta as a case study. The framework proposes licensing fiduciary conduct under the Malta Financial Services Authority while providing infrastructure assurance through the Malta Digital Innovation Authority. This model anchors accountability to proximity rather than legal fiction, and to function rather than form, offering a scalable solution respecting EU subsidiarity principles.Keywords: Decentralised Finance, Financial Regulation, European Union, Malta, Blockchain, Smart Contracts