MiCA (Markets in Crypto-Assets) describes the first comprehensive EU regulatory framework for cryptocurrencies, which has entered force in June 2023. The regulation attempts to bring transparency into the blockchain space. It sets a regulatory framework to handle disclosure, authorisation, and monitoring of transactions by digital asset service providers.
The proposal primarily aims to create a consistent approach across all 27 member states of the European Union. MiCA will impose new regulations on many players in the crypto market. In addition to exchanges, it will primarily affect issuers of stablecoins, which are pegged to existing assets such as the U.S. Dollar or the Euro.
New regulations under MiCa
Under the new rules, stablecoins such as Tether’s USDT and Circle’s USDC must maintain sufficient reserves to meet redemption requests in the event of mass withdrawals. Systemically important “non-euro stablecoins” must also expect their transactions to be capped at 200 million euros per day, a provision sharply criticized by industry representatives that was initially removed only to be reinstated last minute.
The regulation also covers a range of companies classified as crypto-asset service providers (CASPs). These include entities such as custodian wallets, exchanges that facilitate transactions between cryptocurrencies or with fiat currencies, crypto trading platforms, as well as crypto-asset advisory firms and portfolio managers. In terms of assets, MiCA applies to three categories:
- Asset-referenced tokens
These include stablecoins backed by commodities or by one or more currencies - E-money tokens
Specifically stablecoins backed by a single fiat currency - Other tokens
Including utility tokens
Not covered by MiCA
MiCA partially regulates NFTs (non-fungible tokens). The regulation will only apply if the NFTs share characteristics with assets that fall under the MiCA's jurisdiction. For example, characteristics similar to a utility token or a financial instrument are covered. It is important to recognise that under MiCA, the mere assignment of a unique identifier to a token does not automatically make it non-fungible. Interestingly, even non-fungible tokens issued in significant quantities could be considered fungible under MiCA. This could have particular implications for projects involving fractionalised tokenisation, where NFTs are used to represent a unique unit of an original piece. This has been applied in the art space, where NFT technology has enabled micro-purchases of famous works of art.
On the other hand, fully decentralised DeFi applications are not regulated by MiCA. As decentralised applications (dApps) for DeFi operate without intermediaries, they are not covered by MiCA. This exemption is in line with the decentralised nature of these applications. If the dApps are "partially decentralised", they fall within the scope of MiCA. More details can be found in the EU ECON study on the MiCA regulation.
Conclusion
Overall, MiCA is a first attempt to create a comprehensive regulation for digital assets in the EU. While opinions are divided on the details of implementation, industry representatives agree on the central role of increased legal certainty. By broadening its scope to include crypto asset service providers such as custodians, exchanges and advisory firms, MiCA aims to address the evolving challenges and risks posed by the growing crypto industry. The regulation categorises the crypto market and lays a focus on asset-referenced tokens, e-money tokens and utility tokens
The implementation of MiCA is expected to promote investor protection, enhance market integrity and foster innovation, while contributing to a harmonised regulatory landscape for crypto-assets across EU member states. Policymakers must remain mindful of the evolving dynamics of the crypto space and aim to strike the right balance between fostering innovation and ensuring robust investor protection.
