It’s no secret that national governments around the world have a general disdain for a large segment of their own citizenry. For the most part, they pass laws that do little to help the average person. They force farms to raise fewer cows and manipulate people into medical experimentation to line their own pockets. But every once in a while they get something right. One of those instances recently happened when The European Parliament passed the MiCA law (Markets in Crypto-Assets). While the law might not be perfect, it’s lightyears ahead of any effort the US is making. Let’s look at what the law entails and examine any areas that got left out.
Overview of MiCA Law
The passing of MiCA is a huge step forward for Europe. It will effectively lay the groundwork for 27 countries to have flourishing and compliant crypto industries. And it might be the first comprehensive, crypto-focused legislation of its type that has become law. So what kind of regulations are contained within the law? Let’s find out.
The primary purpose of MiCA is to regulate primary market activities (issuance and public offerings) and access to the secondary market (listings). MiCA also gives a definition to “crypto asset,” stating that a crypto asset is a “digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology.” MiCA is the law that regulates all crypto assets.
Importantly, MiCA defines and gives regulatory parameters to 3 different categories of crypto assets: Electronic Money Tokens (EMTs), Asset-referenced tokens (ARTs), and all other crypto assets. EMTs and ARTs are two variations of stablecoins.
- EMTs – crypto assets that “maintain a stable value by referencing to the value of one official currency.” These currencies would probably be backed by the Euro.
- ARTs – crypto assets that “maintain a stable value by referencing to any other value or right or a combination thereof, including one or more official currencies.” ARTs could be backed by multiple different fiat currencies, commodities, or crypto assets.
- All Other Crypto Assets – “A type of crypto-asset which is only intended to provide access to a good or a service supplied by the issuer of that token.” Essentially these are the common tokens we are used to trading and using everyday such as $Matic, $Ether, $Avax, and $Ada.
EMTs and ARTs will be heavily regulated by central banks and restricted based on certain variables such as the number of holders, market cap, and issuer connections with financial institutions.
I’m not sure if this is good or bad, but MiCA broadly does not apply to NFTs or DeFi protocols/tokens. DeFi isn’t covered by MiCa because it doesn’t cover those assets that are provided in a truly decentralized manner without any intermediary. This will more than likely be the subject of future debates because true decentralization has yet to be defined. Fortunately, we did a story about Charles Hoskinson and his pursuit of what true decentralization means with the University of Edinburgh.
MiCA spells out registration rules for centralized exchanges and disclosure rules for listing new tokens. A really cool aspect is when projects register in one of the 27 EU member nations, they can then operate in any EU region.
MiCa requires that issuers of new crypto assets publish a whitepaper before listing on an exchange and provides guidance as to what needs to be covered in the whitepaper. At a minimum, the whitepaper needs to address information about the issuer, the project and token, risks, and also any adverse environmental impacts of the consensus mechanism used (PoW versus PoS). Interestingly, there is no requirement for a competent authority to approve the whitepaper. But you can rest assured that if projects write half-assed whitepapers that don’t include all the required information, they will yank the token off of exchanges.
Finally, MiCA seeks to address anti-money laundering regulations by requiring crypto exchanges to identify both ends of a crypto transfer.
The new MiCA law is incredibly important for Europe and the entire world. European legislators put in the hard work and now other lazy governments like the US can adopt the entire thing or modify it as they see fit. Now there is no excuse for the US government not to introduce its own similar legislation. US citizens need to begin putting serious pressure on our government to adopt and amend MiCA in a way that accounts for any differences in the US. We can begin by supporting lobbyist organizations like the ones mentioned here, and by writing or calling our national representatives.
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