On Sunday, the first wave of a landmark, comprehensive European Union law governing digital assets will come into effect. With the Markets in Crypto-Asset Regulation framework, Europe has succeeded in what other jurisdictions, including the US, still avoid: providing legal and regulatory clarity not just to one part of the digital asset market, but to all.
The last five years, catalyzed by the specter of Big Tech, such as Meta’s Diem (formerly Libra) initiative, the entry into financial markets or due to concerns about uncontrolled cryptocurrency, have been marked by a coordinated policy development in Europe. MiCA will have a major impact on the permanent connection of digital assets and the real economy, in a characteristically European way.
Dante Disparte is Director of Strategy and Head of Global Policy at Circle.
The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
In the first decade of cryptocurrency, much of the industry was characterized by an engaging and repetitive boom-bust cycle that in many ways made it a uniquely American market. As a result, the US dollar is not only a price benchmark for digital assets (thanks to the steady growth of stablecoins, which now exceed more than $150 billion), but also the reserve currency of Internet finance, just as it plays this role in the real world. MiCA is trying to solve this by giving Euro stablecoins, which will be classified as e-money tokens under the new EU rules, a chance for success and a consumer market of 441 million people.
While some aspects of MiCA are protectionist in nature and rooted in protecting European consumers and investors from the fraud and risks that plague fast-moving crypto markets, there is also a degree of economic and technological sovereignty at stake. This is most evident in how offshore stablecoins – diplomatically referred to as global stablecoins – are inadmissible according to MiCA. In particular, stablecoins pegged to other currencies must meet the licensing requirements for electronic money in Europe, which would mean compliance with prudential rules, financial crime rules and other rules. If a stablecoin issuer offers additional cryptoasset services, it must obtain a second license – either as a digital asset service provider (DASP), virtual asset service provider (VASP) or cryptoasset service provider (CASP), depending on the jurisdiction. This requirement is the basic level of compliance for custody of digital assets. Apart from these licensing requirements, gone are the days of amorphous crypto companies that have no significant presence in the EU.
Indeed, MiCA is as much about job development and economic competitiveness as it is about consumer and market protection. Licensed entities must have responsible ‘minds and management’ in the EU jurisdiction, through which they can then transfer their operations across the federation thanks to EU-wide regulatory harmonization – although there is still some distance for national level regulators to ensure the arrival of MiCA. will enter into force smoothly throughout the common market.
For the crypto industry and its existential connection with the banking sector, MiCA means a profound change for which only the most serious players are ready. For example, in the resurgent stablecoin category, in which the reference currency is the dollar, MiCA represents the proverbial fiscal cliff, where unregulated or non-compliant tokens will eventually be removed or crypto exchanges severely restricted. The reason is simple. Instead of treating stablecoins as a fringe financial product or just a poker chip in a crypto casino, MiCA brings stablecoins in line with long-standing electronic money rules. Therefore, all stablecoins offered by crypto exchanges in the EU must comply with the rules for electronic money tokens. This gives the token holder the right to redeem the underlying currency at face value directly from the issuer, a way to strengthen collective responsibility and consumer protection in the interconnected value chain of digital assets – from wallet to exchange and ultimately the issuer. Contrast this model with the amorphous standards or lack of prudential safeguards that protect against leakage on Terra Luna stablecoins. If Terra Luna were governed by the US equivalent of electronic money, which are state money transfer laws, consumers could be better protected from going bust.
In the prevailing EU model, all regulated stablecoins will now have a common regulatory floor, which will not only promote competition, but ultimately lead to wider fungibility and interoperability in the EU market. Like all new rules or comprehensive regulations, MiCA is imperfect and in places too prescriptive, so much so that EU policymakers are already considering MiCA 2.0, which would potentially fill certain gaps in the regime, such as non-fungible tokens (NFTs), decentralized finance and more areas. While MiCA has now given European crypto market participants clear rules, on the US side of the Atlantic imperfect rules or a lack of federal regulation has allowed the industry to flourish. Should the transatlantic technology divide widen – or should the US and critical EU partners pursue shared digital commons?
If US policymakers take a competitive stance against the EU on digital assets, a real “NAFTA for digital assets” can be contemplated in North America. However, a lasting alternative would be to create a transcontinental Western alliance for digital assets that would anchor shared democratic values ​​in these emerging markets and as exponential technologies shape the future.
Now that the world has MiCA, it is time for the US to act and reassert its place as a global leader in financial services regulation and innovation.