The European Union's financial markets and securities regulator, the European Securities and Markets Authority (ESMA), has stated that while decentralized finance (DeFi) does require monitoring, it does not pose a significant risk to overall financial stability. The ESMA's report on DeFi in the EU noted that the relatively small size of the crypto-assets markets, including DeFi, and limited contagion channels between crypto and traditional financial markets mean that they do not represent a meaningful risk to financial stability at this point.

However, the report cautioned that DeFi has similar traits and vulnerabilities to traditional finance, and there are still serious risks to investor protection due to the highly speculative nature of many DeFi arrangements and the lack of a clearly identified responsible party. The regulator is closely monitoring DeFi and crypto markets following the publication of its second consultative paper on the Markets in Crypto Assets (MiCA) regulations.