The European Union has become the first in the world to pass comprehensive legislation on cryptos, bringing much needed clarity to the sector.
Exemption for airdrops and blockchain native tokens, e-money regulations for stablecoins and prescribed whitepapers are some of the chief distinguishing features of the Markets in Crypto-assets (MiCA) new law.
“In order to ensure a proportionate approach, no requirements of this Regulation should apply to the offering of crypto-assets, other than asset-referenced tokens or e-money tokens, that are offered for free or that are automatically created as a reward for the maintenance of the DLT or the validation of transactions in the context of a consensus mechanism,” the law says, adding:
“When making a public offer of crypto-assets, other than asset-referenced tokens or e-money tokens, in the Union or when seeking admission of crypto-assets to trading on a trading platform for such crypto-assets, offerors or persons seeking admission to trading should produce, notify to their competent authority and publish an information document (‘a crypto-asset white paper’) containing mandatory disclosures.
Such crypto-asset white paper should contain general information on the issuer, offeror or person seeking admission to trading, on the project to be carried out with the capital raised, on the public offer of cryptoassets or on their admission to trading on a trading platform for crypto-assets, on the rights and obligations attached to the crypto-assets, on the underlying technology used for such assets and on the related risks.”
For stablecoins “the function of such crypto assets is very similar to the function of electronic money, as defined in Article 2, point 2, of Directive 2009/110/EC of the European Parliament and of the Council.” So they’re defining them as e-money and applying that Directive.
NFTs are exempt from this law, so art can keep flourishing in Europe with the United Kingdom likely to adopt very much the same approach.
Out with SEC, in with Europe
The passing of this law comes while the crypto industry is engaged in fierce battles with the US Securities and Exchanges Commission (SEC), which is being fought in numerous courts and committees.
Unlike the opinionated based approach of whoever happens to be the current director of SEC, the EU is applying the rule of law and is following due process.
In a reasonable manner from what we can see, though we should admit we have not yet read the entire 376 pages of the attached document.
Still on the surface the law strikes a warm tone, stating “by streamlining capital-raising processes and enhancing competition, offers of crypto-assets can allow for an innovative and inclusive way of financing, including for small and medium-sized enterprises (SMEs).”
It says the framework “should enable crypto-asset service providers to scale up their business on a cross-border basis and should facilitate their access to banking services to run their activities smoothly.”
In addition this applies to the entire European Union, a circa $14 trillion market. Other EU neighbors, like Norway, Switzerland or UK, will follow a similar approach, making it overall a circa $20 trillion market that largely strikes the right balance.
The airdrop exemption is a fairly big one as it brings certainty to defi whereby these airdropped tokens are not securities and they don’t even have to publish a prescribed whitepaper because generally such tokens are airdropped when there’s an already running platform that tends to have open source code, making it a lot better than a whitepaper.
This law facilitates capital formation in innovative crypto frontiers by not requiring registration with the new and upcoming SEC equivalent called the European Securities and Markets Authority (ESMA).
Instead such entrepreneurs need just publish a prescribed whitepaper, which they used to do anyway but now there’s the law potential hammer as the whitepaper has to be accurate.
The exemption of NFTs brings certainty to that very new area, and even in regards to stablecoins, no bUSD will be shut here as they can just follow the Directive, just like a euro stablecoin startup does.
The rest is then what you’d expect in regards to exchanges needing to be robust so that their CEO doesn’t just take or ‘lend’ their customers’ funds, and if the capital formation is by a centralized entity or in a centralized manner then it’s a security just as with actual securities.
In US in contrast, due to the complete uncertainty and because Gary Gensler is clearly a buttcoiner, everything is a security, even the cat pictures.
But, entrepreneurs in this space need not fret about US anymore. There’s a huge global market that has the weight to set global standards, as shown by those cookie banners now found everywhere, and within it there are some 27 member states with their own taxation rules, like no capital gains if you hold for a year in Germany.
You can pick anyone of those, and just like that the ‘we won’t innovate for you’ SEC becomes the nightmare that was and is no more.
In instead ESMA. This MiCA legislation is a very big step for Europe too because finance finally is being done at the European level.
They have been trying and still are trying to get a banking union, a capital union, but things are still moving very slowly, even in stocks.
As an example, it’s difficult to get public disclosures of European stock traded companies without going through the usually 90s UI of member state SECs that is very inefficient and quite a barrier even for someone like us who are in the business of info.
Sooner or later ESMA will take over that aspect because it is necessary if EU capital markets are to complete, but where the crypto industry is concerned, we don’t have to wait any longer as we get to be the first to experience the capital union in crypto aspects.mica-oct-2022-draft-version
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