MiCA’s Impact on European and Global Crypto, and How to Stay Ahead

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Introduction

Crypto has evolved over the past few years to become a multi-trillion dollar industry. Its rapid innovation across a broad spectrum of industries, underpinned by blockchain technology, has kept global regulators exploring ways to keep up. The Markets in Crypto Assets (MiCA) Regulation in the European Union offers a blueprint for regulatory frameworks not just in Europe but around the world.

MiCA’s pioneering oversight has set the standard, and with it comes a new level of expectation from users, investors and regulators. Compliance with MiCA will be a significant advantage for even Web3 projects outside the EU in terms of legitimacy, trust, and cross-border collaboration with traditional financial institutions and regulators. Those token issuers and crypto asset service providers (CASPs) that opt to operate within the MiCA framework will be positioned ahead of the competition for the developments to come.

What is MiCA?

So, what exactly is MiCA? The Markets in Crypto Assets Regulation, known as MiCA, has been put in place to govern rules around cryptocurrencies in the European Union. Many industry commentators describe this European crypto asset regulation as the first truly comprehensive framework by a governing body anywhere in the world. It was first approved in April 2023 and has been fully in force since December 2024. EU regulators and Web3 project founders alike hope it will strike the balance between streamlining adoption and protecting users and investors.

While the objectives are numerous, MiCA's primary goals can be distilled to:

Creating a clear rulebook to enable fair competition and innovation

Ensuring market integrity and financial stability with accurate communications and records

Adequately protecting users and investors with transparency and liability

Further, by implementing a comprehensive regulatory framework MiCA has the potential to enhance the legitimacy of the crypto sector. By protecting investors, fighting financial crimes, and maintaining financial stability, it will boost consumer confidence in crypto products and services. Web3 service providers operating in line with MiCA have the opportunity to greatly increase the public perception of legitimacy and trust in their projects. Projects based outside of the EU that take MiCA’s guidelines seriously stand to gain an advantage over those that lag behind.

Key Priorities: Accuracy, Transparency, and Liability

MiCA imposes a comprehensive set of requirements on token-issuing projects and CASPs, providing clarity for the industry. Within this clear rulebook, the substance of these requirements generally advances the regulation’s primary goals of accuracy, transparency and liability.

Accuracy

The EU has established a unified system of licensing for crypto asset service providers throughout all 27 countries in the European Union. The good news for token issuers and service providers is that once deemed as MiCA compliant in its registered country, they are allowed to operate across all 27 nations. This simplifies the process for CASPs that wish to operate in multiple EU countries and provides simple and clear information for regulators and users.

Further, token issuing projects are required to:

Provide a detailed white paper with information that accurately represents the token and the network.

Offer accurate and clear communications and marketing.

Maintain transaction records.

Transparency

MiCA also imposes requirements for token issuers and service providers to provide transparency to customers in a number of areas, making sure that users are fully informed. This includes obligations to:

Publicly provide the detailed white paper mentioned above.

Provide risk disclosures.

Set up complaint-handling processes.

Disclose their environmental impact.

Liability

Additional regulations strive to ensure that token issuers and CASPs appropriately protect investors’ crypto assets and can be held responsible for failures to do so. CASPs are required to put in place comprehensive policies to address these issues, including requirements that they:

Establish a legal entity within the EU.

Meet specified minimum capital requirements.

Segregate client funds from operational funds.

Implement anti-money laundering measures.

Monitor transactions for suspicious activities and sanctioned addresses.

Implement systems and adhere to rules designed to detect and prevent market abuse and manipulation, insider trading, and conflicts of interest.

Adopt policies addressing data security and service continuity

Scope: What Assets Are Covered and What’s Not?

One major part of the complexity surrounding MiCA is understanding what assets are covered by its remit, and which are not. MiCA also creates several distinct categories of digital assets, imposing additional regulations on some and exempting others from certain requirements.

Covered

Crypto-assets: any digital representation of a value or a right, which may be transferred and stored electronically, using distributed ledger or similar technology (a broad category that includes, e.g., Bitcoin, Ether).

Utility tokens: tokens which are only intended to provide access to a good or a service supplied by its issuer and which can only be accepted by the issuer. Utility tokens are exempt from certain MiCA requirements.

Stablecoins: e-money tokens or asset-referenced tokens, such as those pegged to the price of the U.S. dollar or euro (e.g., USDC). Issuers of stablecoins are subject to the oversight of the European Banking Authority and additional requirements, including the obligation to maintain 1:1 liquid reserves to back their tokens. Further rules, such as additional liquidity and recovery plans, apply to “significant” stablecoins. Significant stablecoins are those which have more than 10 million holders, more than €5 billion market capitalization, and the number and value of daily transactions of which per day is over 2.5 million and €500 million.

Excluded

Traditional financial products (including structured deposits, securitisation positions, insurance and pension products)

Financial instruments: crypto assets that qualify as financial instruments under MiFID II.

Central Bank Digital Currencies (CBDCs)

Non-fungible tokens (NFTs): unique and non-fungible crypto assets. However, NFTs which meet certain criteria may qualify as crypto assets within MiCA's purview.

DeFi: tokens and services deemed to be fully decentralised and without intermediaries.

Distinguishing between tokens falling under MiCA and those qualifying as financial instruments can be complex. The European Securities and Markets Authority (ESMA) has issued detailed guidelines to help with this.

Positioning for the Future of Compliance

Initially MiCA may seem to add more complexity to the regulatory landscape, but it ultimately offers opportunities to increase legitimacy and growth in the EU and beyond. MiCA no doubt provides challenges for companies working to comply with its regulations, but it also finally provides concrete guidelines for CASPs, token issuers and traditional financial institutions to enter the space with confidence. MiCA pioneers comprehensive regulations on the Web3 industry, and is likely to lead other jurisdictions to create similar frameworks around the world.

Compliance with MiCA’s regulations will be a significant advantage for Web3 projects outside the EU as well. MiCA’s pioneering oversight has set the standard, and global regulators are now scrambling to keep pace. As they do so, those token issuers and CASPs that already operate within the MiCA framework will be positioned ahead of the competition.