IOTA Foundation Calls for Smarter UK Crypto Rules

The IOTA Foundation together with its partners has submitted a unified response to the UK’s Financial Conduct Authority (FCA), advocating for a more nuanced regulatory framework for cryptoassets. The central argument is that applying identical rules to both centralized custodial services and decentralized non-custodial protocols ignores the fundamental differences in risk and architecture. Decentralized finance (DeFi) protocols embed transparency and safeguards directly into their code and governance, making them inherently auditable and less reliant on traditional oversight. The coalition proposes a tiered regulatory model based on project size, structure, and risk, and calls for clearer rules around staking and credit use, emphasizing that industry-led self-regulation can effectively manage DeFi risks without stifling innovation.

Key Ideas

Custodial and non-custodial services pose different risks and should not be regulated under a one-size-fits-all model.
A tiered, proportionate regulatory approach is needed, with clearer guidance on staking, credit, and decentralized governance.

Why It Matters?

Developers want to prioritize building DeFi applications with transparent, auditable smart contracts and embedded risk disclosures. This includes implementing robust governance mechanisms and making protocol operations easily verifiable to align with emerging regulatory expectations and foster user trust.