Decentralized finance (DeFi) needs to be subject to new regulations, a senior German financial regulator has said, citing the risk of hacks and fraud.

The comments come as EU regulators consider whether a flagship crypto law known as MiCA should extend beyond currencies like bitcoin to cover other Web 3 innovations in the financial sector.

“If DeFi is to be a genuine competitor to traditional financial markets, then this won’t work without specific new regulations,” said Birgit Rodolphe, Executive Director for Resolution and Prevention of Money Laundering at German financial regulator BaFin.

“Experience shows that DeFi is not quite as grassroots and selfless as fans of the space depict,” she said, citing abundant technical problems, hacks and dubious activity that cost hundreds of millions.

“Ideally such provisions would of course be consistent EU-wide, to prevent a fragmented market and to boost Europe’s collective innovation potential,” she added, noting DeFi applications such as insurance, lending and securities.

Germany recently topped a CoinCub survey of the world’s most crypto-friendly jurisdictions, in part due to its favorable tax treatment for the assets.

The European Commission originally proposed its Markets in Crypto Assets Regulation (MiCA) to ensure stablecoins don’t rip off investors or destabilize the economy, but lawmakers and governments are now wrangling over whether it should cover innovations like DeFi and non-fungible tokens (NFTs).

To the relief of some in the sector, lawmakers and governments appear to be moving away from imposing new DeFi regulations for now, but instead having the Commission prepare a further study in one or two years’ time.

Read more: NFT Issuers Could Have to Centralize and Register Under EU's MiCA Rules, France Warns