This structural position has significant implications for financial regulation, particularly when regulation is understood as an infrastructural function rather than as entity-based supervision.
Protocol DAOs as governance of financial infrastructure Protocol DAOs are designed to manage and evolve blockchain-based financial protocols through on-chain governance mechanisms. Their primary role is to define and update parameters that directly affect the functioning of decentralized financial markets, such as lending rules, collateral requirements or settlement logic.
From a functional perspective, protocol DAOs perform roles comparable to those of traditional financial infrastructures, while lacking centralized ownership or operational control.
Regulation as infrastructure The concept of regulation as infrastructure shifts regulatory focus away from identifiable intermediaries and towards the design of systems themselves. In decentralized environments, regulatory objectives may be pursued by embedding constraints, transparency requirements and control mechanisms directly into protocol architecture. In this sense, protocol governance and regulatory compliance become closely intertwined. Governance decisions encoded in smart contracts may effectively perform regulatory functions ex ante, rather than relying on ex post enforcement.
Implications for EU financial regulation EU financial regulation, including MiCAR, is largely built around intermediaries and service providers. Protocol DAOs challenge this model by decentralizing control while maintaining systemic relevance.
A regulation-as-infrastructure approach suggests that regulatory assessment should focus on how protocol governance allocates control, manages risk and ensures transparency, rather than solely on the presence of a legally identifiable operator.
Concluding remarks Protocol DAOs highlight the limits of entity-based regulation in decentralized finance. Treating regulation as infrastructure offers a conceptual framework to address these limits, aligning regulatory objectives with the technical and governance structure of decentralized financial systems.
Further reading and in-depth analysis A more detailed discussion of protocol DAOs and regulation as infrastructure is available in the extended paper published on SSRN. Additional reflections on protocol governance and EU financial regulation are shared on LinkedIn.