about-us-sec-img

Crypto-Assets (MiCA) Regulation

MiCA is the first law of its kind in the world, setting a new global standard for regulating crypto-assets. On May 16, 2023, the European Parliament and Council passed the MiCA law. This means that within the next 18 months, new rules will start affecting how virtual currency services are provided in EU countries. This article gives an overview of the MiCA rules and shares opinions on the changes that will impact people involved in the crypto-assets market. It’s not a complete review, and it’s recommended to get legal advice if you have questions about these topics.

MiCA creates rules across the EU for businesses that provide crypto-asset services (also called Virtual Assets Service Providers – VASPs) and for crypto-assets themselves (like cryptocurrencies or virtual currencies). It includes rules for specific types of crypto-assets, such as those backed by regular currencies or other assets, and electronic money based on blockchain technology.

This regulation is part of the EU's goal to embrace the digital age and create a future-ready economy. Crypto-assets are expected to play a big role in raising money for businesses and ideas through new ways of financing. They can also be used for payments, making it cheaper, faster, and more efficient to transfer value (especially across borders) with fewer middlemen. MiCA will encourage companies in the blockchain industry to grow, leading to economic growth and new job opportunities for people in the EU.

What types of crypto-assets does
MiCA regulate?

MiCA seeks to regulate three main categories of crypto-assets
that use distributed ledger technology:

feature icon

Asset-Referenced Tokens

These tokens are designed to maintain a stable value by being backed by a diversified basket of assets, which may include fiat currencies, commodities, or other cryptocurrencies. They are often referred to as "stablecoins" due to their goal of minimizing volatility. Unlike e-money tokens, ARTs are pegged to multiple types of assets, providing a diversified source of value stability. This multi-asset backing helps ARTs to maintain their price stability and act as a reliable store of value, making them attractive for use in transactions and financial systems.

feature icon

E-Money Tokens(EMTs)

E-money tokens are another form of stablecoin, but unlike ARTs, they are pegged specifically to the value of a single fiat currency, such as the Euro or the U.S. dollar. They function similarly to traditional electronic money (e-money), and issuers of EMTs are required by regulation to redeem the tokens at their face value upon request. This ensures that users can always convert their tokens into the equivalent amount of fiat currency, providing a high level of consumer protection and maintaining confidence in the value of these tokens.

feature icon

Utility Tokens

Utility tokens are unique in that they are not primarily used as a form of currency or store of value. Instead, they represent access to a specific application, service, or platform. These tokens are issued by companies or platforms and grant the holder certain rights, such as the ability to use a service or access certain features within a system. Utility tokens are often used in blockchain-based ecosystems, where they facilitate the interaction between users and the platform’s services.

feature icon

Other Crypto-Assets

MiCA also covers crypto-assets that do not fall under the categories of ARTs, EMTs, or utility tokens. This category includes a broad range of digital assets, such as cryptocurrencies like Bitcoin and Ethereum, that do not fit the specific definitions of asset-referenced or e-money tokens. By regulating these additional assets, MiCA aims to provide a comprehensive framework that can adapt to new developments and innovations in the crypto market, ensuring that regulatory oversight remains robust and flexible.

Find out more information about the Crypto
Assets (MiCA) regulation

contact us

Classification of Crypto
Assets

Until MiCA, there was no unified approach for the classification of crypto assets in the EU. Certain assets were classified as financial instruments within the meaning of Directive 2014/65/EU of the European Parliament and of the Council; however, the major part of existing virtual currencies (e.g., Bitcoin, Ethereum, Litecoin, etc.) were unregulated on an EU-wide level.

A number of countries in the EU established local regulations, defining virtual currencies. This situation led to a lack of user confidence in those assets, which significantly hindered the development of a market for those assets and may have led to missed opportunities in terms of innovative digital services, alternative payment instruments, or new funding sources for EU enterprises.

There was also significant influence affecting EU single market principles due to possible distinctions between approaches in different countries (e.g., some countries’ supervisory authorities considered virtual currencies as financial instruments and imposed stricter requirements for holding and use of such instruments as means of payment).

The European Securities and Markets Authority (ESMA) shall also issue guidelines on criteria and conditions for the qualification of crypto-assets as financial instruments. The guidelines should help clarify cases in which crypto-assets that are otherwise considered unique and not fungible with other crypto-assets might be qualified as financial instruments.

It’s important to note that MiCA remains technologically neutral, and the term “token” may be applicable to any crypto asset, even if it has its own blockchain (which usually refers to “coins”). It is mentioned that ‘Crypto-assets’ and ‘distributed ledger technology’ should be defined as broadly as possible to capture all types of crypto-assets that currently fall outside the scope of EU-wide legislation.

The new regulation aims to unify the approach to crypto-assets’ definitions and introduces three types of crypto assets depending on the risks they entail. Classification is based on whether crypto-assets seek to stabilize their value by referencing other assets (including official currencies or certain assets like gold) and a negative definition that all other crypto assets shall fall under a category referred to as “crypto-assets.” There’s also a separate definition for utility tokens, which are intended only to provide access to a good or service supplied by the issuer of such tokens; however, there’s no difference in the approach for such tokens, except certain requirements during ICOs.

Electronic Money Tokens and Asset-Referenced Tokens

An electronic money token, or e-money token, is a type of crypto asset that purports to maintain a stable value by referencing the value of one official currency. Such tokens may affect financial markets and, together with asset-referenced tokens, require enhanced supervision.

An asset-referenced token is a type of crypto asset that is not an electronic money token and purports to maintain a stable value by referencing any other value or right, or a combination thereof, including one or more official currencies and/or other assets (e.g., gold or silver). The main criteria for asset-referenced tokens’ qualification will include an analysis of the mechanism for maintaining stable value in relation to certain assets; for this reason, algorithmic “stablecoins” will fall under the new regulation.

MiCA also establishes additional requirements for e-money and asset-referenced tokens, which should be considered “significant,” taking into account a large customer base, high market capitalization, or a high number of transactions. Such requirements will include higher capital requirements and the obligation to manage liquidity according to certain standards.

The Impact of MiCA

MiCA makes the rules clear about what crypto activities need a license, how crypto can be marketed and sold, and provides better protection for users across Europe. Although it doesn’t cover decentralized finance and non-fungible tokens yet, it is a positive step towards better global regulation of cryptocurrencies.

The goal is to encourage more people to get involved in the crypto market in the region. MiCA will apply to 27 countries, which together make up about one-fifth of the world’s economy, and will give businesses more legal certainty.

marketing-advice
Any Questions

Frequently Asked Questions

MiCA stands for the Markets in Crypto-Assets Regulation. Its goals are to create clear rules for crypto assets, protect investors, and promote innovation while ensuring market stability.
Issuers must provide clear information about their crypto assets, ensure they meet standards, and protect investors from risks. They must also register and comply with regulations.
CASPs must follow strict rules to protect users, report suspicious activities, and keep customer information safe. They also need to be registered and maintain high standards of conduct.
Traders must act fairly, follow laws about trading, and ensure they have the right licenses. They should also provide accurate information to customers and report any unusual activities.
MiCA covers various crypto assets, including stablecoins, utility tokens, and asset-backed tokens. It aims to regulate all major types of crypto assets used in the market.
Contact Us

Your Legacy Awaits

arrow
Follow Us
footer-img

Explore our complete range of crypto and forex license services by navigating your future confidently with Alparanjo.

Quick Links

Useful Links

Contact Info

Copyright 2023, alparanjo.com All Rights Reserved.