> For the complete documentation index, see [llms.txt](https://www.mica.wtf/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://www.mica.wtf/eu-level/soft-law/joint-eba-and-esma-factsheet-on-crypto-lending-borrowing-and-staking.md). # Joint EBA/ESMA — Crypto Lending/Staking | | | | -------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | | **Authority** | EBA and ESMA (joint) | | **Addressees** | Retail clients; general public | | **Status** | Published | | **Source** | [EBA (PDF)](https://www.eba.europa.eu/sites/default/files/2025-01/254e8d00-e497-4d96-8d54-9bd52e3b1f36/EBA-ESMA%20crypto%20lending%20and%20staking.pdf) | **Joint EBA and ESMA factsheet on crypto lending, borrowing and staking** · [EBA/ESMA](https://www.eba.europa.eu/sites/default/files/2025-01/254e8d00-e497-4d96-8d54-9bd52e3b1f36/EBA-ESMA%20crypto%20lending%20and%20staking.pdf) ## Overview This joint EBA and ESMA factsheet explains how crypto lending, borrowing and staking work, the risks these activities pose to retail clients, and how they sit relative to MiCA. It is an educational publication produced under the ESAs' consumer-protection mandate rather than a binding instrument. ## Key points * Describes common crypto lending, borrowing and staking arrangements (centralised and decentralised, custodial and non-custodial). * Highlights risks: counterparty failure, loss of principal, slashing, illiquidity, smart-contract bugs and rehypothecation of client crypto-assets. * Notes that MiCA does not regulate crypto lending and borrowing per se, but conduct, custody, disclosure and CASP rules can still apply where a regulated service is provided. * Flags that some staking models may fall outside MiCA depending on how the service is structured. * Warns retail clients about misleading "yield" framing and lack of investor compensation schemes. * Supports supervisory monitoring of activities adjacent to the MiCA perimeter and informs future policy work. * Complements the joint EBA/ESMA report on recent developments in crypto-assets under [Article 142](/mica/title-ix-transitional-and-final-provisions-art.-140-149/article-142.md) MiCA. ## Full document Available on the [EBA website (PDF)](https://www.eba.europa.eu/sites/default/files/2025-01/254e8d00-e497-4d96-8d54-9bd52e3b1f36/EBA-ESMA%20crypto%20lending%20and%20staking.pdf). ## Recent developments in crypto-assets \#CRYPTO-ASSETS #CRYPTO LOANS #STAKING ## Crypto lending, borrowing and staking This Factsheet summarises the key findings on crypto lending, borrowing and staking set out in the 2025 joint EBA-ESMA report on recent developments in crypto-assets. ## What is crypto lending, borrowing and staking? ## Crypto-lending: A provider (lender) transfers a certain value of crypto-assets or funds to a user (borrower) in exchange for the user placing a certain value of crypto-assets or funds as collateral. The borrower commits to return to the lender a value equivalent to the transferred value of cryptoassets or funds and the potential additional interests on a future date to the lender. ## Crypto borrowing: A user (lender) transfers a certain value of crypto-assets or funds to another user (borrower). In exchange the borrower commits to returning to the lender an equivalent value of crypto-assets or funds and potential additional interests on a future date (or in the event of some other trigger event). ## Crypto staking: The process of immobilising crypto-assets to support the operations of Proof-of-Stake (PoS) and PoS-like blockchain consensus mechanisms in exchange for the granting of validator privileges that can generate block rewards. ## EU markets for crypto lending, borrowing and staking ## Potential risks associated with crypto lending, borrowing and staking ## Consumer Protection * Marketing materials and disclosures may provide misleading information on opportunities and risks. * Users may receive insufficient information on (a) pricing and fees, (b) interest rates or yields, (c) changes to collateral requirements, (d) actions the provider may take, or (e) rights and liabilities. * Insufficient financial education or digital literacy of retail users on risks associated with these activities. Specific to crypto lending and borrowing Specific to DeFi lending and borrowing Specific to crypto staking Money laundering/Ter rorist financing risks ## Next steps: * The European Commission is expected to take account of the EBA-ESMA joint report on recent developments in crypto-assets pursuant to its analysis under [Article 142](/mica/title-ix-transitional-and-final-provisions-art.-140-149/article-142.md) MiCAR. * The EBA and ESMA will continue monitoring the relevance of crypto lending, borrowing and staking in EU markets as part of wider innovation monitoring initiatives which help inform assessments of opportunities and risks, and any potential supervisory or regulatory actions. * Highly leveraged market making activities can lead to 'collateral chains'. * Contagion risks via the interconnectedness arising from common asset holdings and procyclicality. * The absence of creditworthiness checks, and, as a consequence, of credit risk assessment. * Liquidity risks, risks of liquidation, and enhanced risks in cases of co-mingling of crypto-assets. * Collateral chains can come with enhanced systemic risks via: a) cascade liquidations across multiple DeFi protocols, b) deleveraging spirals when assets are liquidated, and c) systemic liquidity crunches. * Market concentration risks (e.g. 13 protocols distribute 86% of the total market). * Barriers to financial inclusion and insufficient information, due to heightened complexity. * Market risks associated to significant valuation changes during lock-up or unbonding periods. * Market volatility risk amplification when the market value of liquid staking tokens decline. * Questions around to what extent penalties and risks are passed on to and disclosed to users. * Custody risks in the event of custodian failure, asset co-mingling and insufficient record-keeping. * Users can engage in lending and borrowing without disclosing their true identity or the identity being verified. * Limited scrutiny of purpose and source of funds could expose the financial system to vulnerabilities. * Without monitoring and checks, users from high ML/TF-risk jurisdictions could transact without being detected. * Operational and ICT risks. * Market risks (e.g. volatility enhances liquidation risks). * Legal risks. 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