MiCA (Markets in Crypto Assets) is a proposed regulatory framework of the European Union that is expected to be signed into law in July. Some of the rules will take effect in July 2024, while others will be implemented by January of the following year. MiCA is considered the world’s most significant crypto regulation. So let’s find out what it involves.
What Does MiCA Apply to?
The latest version of MiCA states that the rules apply to any entity or person engaging in the issuance of crypto assets or allowing the public to trade such assets on their platforms.
The regulatory framework describes a crypto asset as a virtual representation of a right or value that may be stored and transferred electronically by the use of distributed ledger technology.
MiCA splits crypto assets into three categories. One of them is Electronic Money Tokens. Such assets use only one currency to keep their value stable. The second one is Asset-Referenced Tokens. These digital assets peg their value to a basket of other assets and currencies. Meta’s fallen stablecoin Diem would have been put under this category.
The third category covers almost all the other cryptocurrencies, with a few exceptions like those already covered by the current legislation. In addition, small companies with crypto projects worth less than $1.24 million are not obliged to submit a white paper.
Does MiCA Apply to NFTs?
The EU’s proposed regulations do not apply to non-fungible tokens (NFTs). MiCA only targets fungible crypto assets. But regulators in that region have constantly argued that NFTs have a fungibility element if issued in a large collection. This means popular NFT projects like CryptoPunks and Bored Apes, which feature over 10,000 art pieces, could be scrutinized once MiCA takes effect.
What Rules is MiCA introducing?
The 500-page regulatory framework states tougher policies for stablecoins, the implementation of know your customer and anti-money laundering procedures and more disclosure requirements for crypto companies. MiCA lists trading platforms, portfolio managers, and custody providers as crypto firms.
These entities are expected to adhere to strict requirements to safeguard client funds and will be liable if they lose them. MiCA also requires each company to hold a minimum amount of its own assets depending on the activity it is involved in.
Once a crypto firm secures a license from one regulator in an EU country, it can offer its services in other EU nations, which are currently 27. MiCA’s primary goal is to harmonize policies across the European Union to ensure a consistent approach to managing the crypto industry.
What Does MiCA Say About White Papers?
When MiCA gets implemented, token issuers will be required to provide a white paper before offering the asset to the public. So what’s a white paper? It is a document that informs potential buyers about tokenomics and a roadmap of a particular crypto asset.
As per MiCA, the white paper must cover information regarding the token issuer, the project to be undertaken with the funds raised, and whether there are any rights attached to the crypto asset.
What Does MiCA Mean for Stablecoins?
MiCA states that any stablecoin holder should have the ability to redeem their holdings as they please, meaning the issuers of this type of crypto asset will be required to hold reserves equivalent to the circulating token supply.
Furthermore, the white papers of issuers of stablecoins classified as Asset-Referenced Tokens must be approved by local authorities before they publish them. On the other hand, any entity issuing a stablecoin under the Electronic Money Tokens category is only required to notify a regulator of its white paper.
Will MiCA Prevent Crypto Meltdowns?
MiCA outlines the consequences for crypto companies that fail to adhere to the rules. For this reason, regulators in the EU countries are hopeful that the regulatory framework will help minimize the increasing cases of investors losing their funds and prevent further collapses of companies.
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