The EU’s landmark MiCA regulation passed in the European Council on Wednesday morning. The legislation will now need to pass through a further vote in the European Parliament next week and if approved, the laws in place will commence at the start of 2024 at the earliest. MiCA’s legal texts to license cryptocurrency firms and vet transactions were agreed upon by national diplomats after political deals were struck in June, apparently without further discussion according to reports by CoinDesk. MiCA is the first ever regulation for crypto-asset service providers across the EU’s member states and sets out to bring the issuance of cryptocurrencies under the purview of institutional regulation. The regime also imposes reserve requirements on stablecoins that are aimed at avoiding Terra-style collapses.
The next step in formalizing the regulatory framework comes on October 10 when the European Parliament’s economic affairs committee will vote on the proposal. Following the vote, the text will be translated into the EU’s 20 official languages and is expected to be adopted into the EU’s Official Journal to formalize its enforcement.
Should MiCA be adopted, it would include a 12–18-month adaptation period to prepare for the new laws set in place.
Crypto Daily recently published a comprehensive piece for the Dusk Network in which it describes the key elements of MiCA.
MiCA is set to have far-reaching implications for cryptocurrency regulations and is likely to set the pace for the world to follow. The regulatory framework is a comprehensive one and defines various types of crypto assets that we have yet to see be defined. For example, MiCA splits crypto assets into two categories: Electronic Money Tokens (EMT) and Asset-Referenced Tokens (ART), but algorithmically backed tokens, security tokens, and NFTs have not been included in the various types of crypto assets. MiCA also sets out requirements for new crypto projects and seeks to make a project’s whitepaper a legally binding document. The regulation also includes rules for Crypto Asset Service Providers (CASPs) and requires them to register as legal entities in any one of the EU’s 27 member countries. CASPs must also demonstrate that they have sufficient funds to carry out their planned operations and must provide sufficient evidence of compliance.
While MiCA frequently mentions stablecoins, it does not provide a succinct and legal definition of the word. Rather, it names ARTs and EMTs as two types of stablecoins. According to MiCA’s categorization, EMTs are a one-for-one equivalence, with one electronic euro maintaining the same value as one physical euro, and states that EMTs must be backed by only one fiat currency. ARTs on the other hand are denominated in a single currency, but unlike EMTs are backed by a combination of two or more fiat currencies, one or more cryptos, and/or one or more other assets. MiCA also includes a concept known as the “right of redemption.” Under the MiCA regulation, the right of redemption after sale includes a two-week cooling-off period which gives the right to a full refund without any valid reason if funds are returned in their original form. Right of redemption will apply to both classes of stablecoins and any cryptocurrency assets.
Documents recently leaked in which a new draft of MiCA was released which included algorithmically backed stablecoins that were initially excluded in the regulation. According to the leaked documents, algorithmically backed stablecoins, like the recently collapsed UST, should fall within the scope of regulation “irrespective of how the issuer intends to design the crypto asset, including the mechanism to maintain a stable value.” The leaked document was reviewed by CoinDesk and the YouTube channel Coin Bureau.
MiCA is for the most part welcomed by the industry, there are concerns over the limitations set on non-euro-denominated stablecoins. Harsh measures were removed but made their way back into the legislation in this newest version of MiCA and the leaked copy of the regulation after French officials were concerned over the sovereignty of the euro.
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