EU puts final touches on MiCA regulation

The European Union has put the final touches on the MiCA regulation text.

The European Union has put the final touches on the MiCA regulation text. This is the last step toward a European, uniform crypto framework. Theoretically individual passages can still be tweaked, but in practice the regulation has been approved.

It's been known for some time that rules were coming. In early July, representatives from the EU Commission, Parliament, and Council agreed on a uniform approach. The regulation will govern the issuance, distribution, and trading of cryptocurrencies.

New under MiCA

In the future, crypto service providers will be supervised by the competent European (or national) authorities and must obtain a license from the EU. A license in one member state will allow legal operation across the rest of Europe. Additionally, new projects will be required to publish a whitepaper detailing the technical process. Moreover, issuers will need to build up reserves for stablecoins in the future. Algorithmic stablecoins, like TerraUST, which collapsed in May, will now fall under MiCA as well.

Earlier there was also discussion about possible transaction caps, which would effectively prohibit stablecoin giants like USDT or USDC. These caps, however, apply only to so-called “end duels.” In practice there are only a few examples where stablecoins are actively used as a means of payment, but as things stand, almost no coin hits the mentioned thresholds. The DeFi sector, however, is not covered by MiCA. Experts expect this sector to get its own regulation in the future, though the exact form remains unclear.

NFT questions

There are still questions surrounding NFTs. Non-fungible tokens are largely excluded from MiCA. In the final text, however, there is talk about "fractional parts of unique or non-fungible crypto assets" whose issuance "in a large series or collection can be seen as an indicator of their fungibility".

Meaning: Parts of an NFT series could be treated as classic securities. There is no concrete threshold at which the rule would apply. Robert Kopitsch of the Blockchain for Europe association has expressed concerns:

To date, the NFT situation is still not 100% clear, since the text talks about fungibility indicators. The problem is fungibility is binary—no nuances. Ergo, the status remains a big question mark.

Robert on MiCA in general

He views the overall regulatory approach positively. MiCA will have a similar impact on the crypto space as PSD2-style guidelines did for the banking sector. Above all, passporting—allowing crypto providers to operate across the EU—is a real game changer, he says. Kopitsch adds:

MiCA isn’t perfect, likely too complex and not ideal for stablecoins and probably NFTs, but the ability to operate across the EU with a passport is a real game changer and exactly what Europe needed.

Regulation of the crypto space has kept Brussels lawmakers busy for years. A bitcoin ban has also been debated at times. The rollout of the above guidelines is expected starting in Q2, 2024.