Guest Post: MiCA - the Impact of Pending EU Regulation on web3

One of the many joys of working in web3 is the enthusiasm of young professionals, looking to learn what they need to learn to dive into this exciting and developing space. In that vein, I have the opportunity this semester to work with Christian Caprari (a current LLM candidate at the University of Cincinnati College of Law), as an extern with BSL Group, where he is working to support our clients by, among other things, researching emerging regulatory regimes, including the subject of this post - MiCA. 

So, without further ado, I give you Christian:

MiCA - the Impact of Pending EU Regulation on web3

By: Christian Capari

As the vote on the Markets in Crypto Assets (MiCA) regulation approaches, it is important to understand how this new European Union law will impact the existing regulatory framework of Markets in Financial Instruments Directives (MiFID) I and II.

MiFID I & II

MiFID I, enacted in 2007, aimed to enhance transparency across European financial markets by establishing a common standard for financial institutions' required documentation. However, MiFID I had limitations, as evidenced during the 2008 financial crisis, particularly in how each state dealt with non-EU countries. Additionally, MiFID I mainly focused on equity markets, leaving a gap in regulating other financial products, making MiFID II necessary in 2018.

MiFID II addressed these critical aspects, ensuring that all financial instruments, regardless of issuance location, can only be traded on multilateral and regulated platforms that meet transparency requirements. This regulation addressed gaps in traditional finance transparency.

However, with the emergence of blockchain technology and its applications to global economics, a new regulation is required to address the complexity of blockchain technology and its deployment to currency and decentralized finance (DeFi). The European Union's response to this issue is MiCA.

MiCA

MiCA aims to regulate only crypto-assets that are not classified as financial instruments. A crypto asset will be considered a security if it meets specific requirements established by the Financial Services and Markets Authority (FSMA), based on a case-by-case assessment.

Utility Tokens vs. Stable-Coins

MiCA identifies and mainly covers two types of tokens: Stable-Coins and Utility Tokens. Utility Tokens provide access to goods or services supplied by the token issuer, while Stable-Coins are cryptocurrencies with a relatively stable price, often pegged to a commodity or currency.

MiCA requires stablecoin issuers to hold reserve assets equivalent to the tokens in circulation. Stable-Coins can be classified as Electronic-Money Tokens (EMT) or Asset Referenced Tokens (ART), depending on the reserve's composition. EMTs can only be backed by reserves of fiat currencies, while ARTs have the ability to keep alternatively two or more fiat currencies, one or more cryptocurrency, or one or more assets as a reserve.

CASPs

Crypto-Assets Service Providers (CASPs) must comply with MiCA to be granted a license to operate in the EU. The services included in the regulation are equivalent to those offered by traditional finance, but with the necessary adaptations to blockchain technology. The capital requirement for these services ranges from $50,000 to $150,000.

Conclusion

MiCA will have a significant impact on the web3 landscape in the EU. Web3 operators should stay updated on the regulatory regime's status to prepare for the new horizons of crypto and blockchain technology in Europe. The success of MiCA will shape the long-awaited regulations that will follow in other countries, particularly in the USA.

What kind of lawyer would I be without a disclaimer?

Everything I post here constitutes my own thoughts, should only be used for informational purposes, and does not constitute legal advice or establish a client-attorney relationship (though I am happy to discuss if there is something I can help you with). I can be reached via email (dlopezkurtz@crokefairchild.com or david@bsl.group), telegram (@davidlopezkurtz), twitter (@lopezkurtz), and on LinkedIn here.