The European Parliament has reached a provisional agreement for a landmark regulation for crypto assets within the region after months of deliberation, public consultations, and feedback from various parties.
The markets in crypto-assets (MiCa) is the name given to the regulatory framework that will seek to bring order to the market of “unbacked crypto-assets” and stablecoins.
The scope of the proposal covers a wide range of hot topics that have concerned regulators for years including anti-money laundering (AML) practices within the space, obligations pertaining brokers and their relationship with customers, and environmental considerations associated with crypto mining activities.
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Stablecoins to be Heavily Regulated Under MiCA
In regards to stablecoins, MiCA will require that all companies that issue “asset-referenced tokens (ARTs)” will need to have a registered office in the European Union to be able to market their products within the economic block.
These companies will be required to maintain ample reserves that can be used to respond to en-masse withdrawals at times of turmoil and their transaction volume could be capped at approximately 200 million euros per day.
In addition, every crypto asset or stablecoin to be marketed to the public in Europe will need to comply with the requirements of the proposal including an obligation to exist as a legal person and create a whitepaper that is sent to competent authorities. This particular rule applies to token offerings exceeding €1 million while securities offered to accredited or qualified investors are exempt.
In summary, these are some of the most relevant topics that MiCa addresses:
- It creates a definition for digital assets, stablecoins, and other similar instruments.
- It regulates how crypto-assets are offered to the public and demands the registration of these assets with competent authorities before they are made available by exchanges.
- It prohibits the marketing of stablecoins (ARTs) unless they are authorized to operate in the region by national competent authorities.
- It outlines the requirements and guidelines that issuers of ARTs must comply with to operate and offer their products in the region.
- It sets forth an organized procedure that issues of ARTs must follow if they are determined to wind down their operations to take the asset out of circulation.
Both Regulators and Industry Leaders Respond Positively to MiCa
In regards to the scope and reach of MiCa, Miread McGuiness, the EC’s Commissioner for Financial Services, Financial Stability, and Capital Markets Union stated: “Those who are in this space are thinking of being innovative will now do it in a way that sits within our regulation rather than in the Wild West”.
It is expected that the law will come into full force in 2024 to give companies enough time to adjust to the legislation.
The heads of various top companies within the crypto space have responded positively to MiCA including the Chief Technology Officer of Tether, Paolo Ardoino, who stated that this is one of the most “progressive initiatives to data”.
Meanwhile, the Chief Strategy Officer of Circle, Dante Disparte, deemed MiCA as a “significant milestone” for the industry. Both Tether and Circle’s products and operations are directly affected by the regulation as the two companies issue stablecoins backed by reserves and pegged to various fiat currencies including the US dollar, the euro, and the pound sterling.
MiCa’s Timing Coincides with Crypto Winter and Terra’s Collapse
The proposal comes at a time when the crypto market is experiencing one of its toughest winters since 2017. Since the year started, data from CoinMarketCap indicates that the market capitalization of the entire ecosystem has declined by over $1.3 trillion or 41% as macroeconomic conditions across the world have kept deteriorating.
In addition, there have been various incidents that have led to severe losses to crypto investors including the collapse of the Terra ecosystem and its native tokens UST and LUNA – an event that led to over $60 billion in losses in a matter of days and to instability across the entire stablecoins space.
The leadership team behind Terraform Labs, the company that developed the blockchain and that was supposedly in charge of stabilizing the value of the UST stable token is under investigation by authorities in the United States and South Korea but, thus far, they have not been formally charged for any criminal activity.
Moreover, several crypto exchanges have paused all withdrawals from their platforms in an attempt to contain run-on-the-bank events and have left thousands of customers in the dark. These exchanges have mostly experienced liquidity crunches caused by the irresponsible issuance of undercollateralized loans that have defaulted due to the sharp declines that most crypto assets have experienced in the past few months.
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