MICA is part of a digital finance package created by the European Parliament to foster innovation in the EU. It has gone through different voting cycles sometimes learning on the go and now the final version was announced in April in order to be approved by European national parliaments. The regulation is created to provide a clear and leveled regulatory framework for companies in the EU that want to experiment with the technology and create new financial products and business models while still offering consumer protection by outlining the game rules defining what is possible and what is not.

In the first quadrant, we have the e-money tokens that fall under the same regulation as traditional e-money that regulates who gets to issue them, how the transactions should be handled, and how the reserve should be managed In the second quadrant, we have the ART divided into two sections depending on the value of the asset under management. In the third, we have the utility tokens. And then there is the catch-all category that will be regulated in a different legislation for tokens that don’t fall under this category.

Only companies that have a seat in the EU are allowed to issue EU crypto assets and before they do so they must publish a whitepaper and must promise to act fairly and professionally but they must also communicate clearly with the holders of the crypto assets, manage and disclose any areas of potential conflict of interest and they must adhere to the systems and security protocols of the union.

If you have been in the crypto space for a while then I am sure you have read your fair share of whitepapers. Most of them are lengthy and use a lot of words to say only little things. What the EU legislator has done in MICA is set up a unified standard for all whitepapers and what they should include. From the detailed description of the issuer to a project explanation and informing the users why the project needs to issue a crypto coin and so forth. You can find this information in the upcoming MICA documents.

Now some exemptions are outlined for the issuer in order to circumvent the registration requirements. These exemptions are that the crypto assets have been offered for free or through the process of mining or validation of a network. The crypto assets are unique and not fungible or they have been offered to less than 150 investors. Or that the amount raised is less than 1 million over 12 months or only offered to qualified investors.

Utility tokens are basically only meant to be used on the blockchain for digital purposes. So for instance let’s consider here a Dutch project, GET protocol, when you buy a ticket for a concert. That means that the purpose of the token is to provide you access to the event. And so if you want to issue tokens to give access to gated communities, events locations, or even content, then you have minimal regulatory requirements.

ARTs are basically tokens that are issued on the blockchain and meant to track the value and digitally represent an underlying physical world asset. Here we refer to tokens that are meant to track the value of a commodity such as gold or silver or a basket of commodities or to track the value of a currency such as the USD or the EUR or a basket of currencies. The outlined regulation discusses the rule for the issuance of such tokens and the reserve requirements that the issuer must follow. For instance, the issuer is supposed to keep 350 000 eur in liquid reserves or 2 % of the average amount of reserve assets. The reserves should be segregated from the issuers own assets so that if he goes bankrupt his customers are still safe. These reserves cannot be used as collateral by the issuer and they should be available to meet the redemption requests. Finally, the assets held in reserve can only be invested in highly liquid assets with minimal risk to be able redemption requirements AND any losses from such investments should be absorbed by the issuer without passing it on to the holders of their token

E-money are tokens that represent digital versions of a FIAT currency on the blockchain. These tokens have a stable value that is guaranteed by the issuer under licenses from the local financial authorities. The E-money regime determines how you invest your reserve assets for instance as an issuer of EMT, assets under management should only be invested in highly liquid investments and held on a trusted bank account. Furthermore the holders of an EMT have a claim on the issuer to redeem their token at par value and at any moment. If you are interested in learning more please feel free to reach out

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    Published On: June 1st, 2023 / Categories: Publications /

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