Over the coming weeks, we’ll be releasing a series of articles on regulations in and around the European Union, with a special focus on the Markets in Crypto Assets Regulation, better known as MiCA. Dusk Network is designed for safety and compliance with global regulation and local legislation. Building products that not only fit within existing and anticipated regulations, but grant our users the confidence to know that what they build with us is also in line with regulations, is all part of our company DNA. As such, we are paying special attention to MiCA, as it has the potential to be the most significant piece of crypto legislation ever passed.
In preparation for this series of articles, we’ll begin by going over
some of the key terminology to be found in MiCA. The reason for this is
that, being legislation, the way in which something is expressed, also
known as wording, is extremely important. Confusingly, the MiCA
definitions of certain words and terms may differ from what those of us
in and around the industry might actually understand them to mean.
Let’s dive in!
Types of Crypto Assets
The MiCA legislation begins by writing out specific definitions of what
they consider to be a ‘crypto asset’ and then specifies three categories
of these. The categories are as follows:
Electronic Money Token (EMT__)__ - a DLT-based cryptographic token that is primarily used as a medium of exchange and which relates its value to a single fiat currency. Tether and Stasis Euro would be examples of this.
Asset-Referenced Token (ART) - a DLT-based cryptographic token that is primarily used as a medium of exchange and which relates its value to more than one fiat currency, one or more cryptocurrencies, or one or more other assets. PAX Gold and DIAM would be examples of this.
Utility Token - a DLT-based cryptographic token whose primary use is to allow access to a service that is exclusively provided by the same company that created the utility token. An example of this would be Filecoin or Binance Coin.
There are several cryptocurrencies that clearly fall into the MiCA
definition of a ‘crypto asset’, but which do not fall neatly into the
above categories. Therefore, we can consider them to be a fourth
Cryptocurrency - a DLT-based cryptographic token that is primarily used as a medium of exchange. BTC and ETH would be examples of this.
We can observe a few interesting things from this classification,
1. There is no place for common terms such as stablecoin or
Asset-Backed Token. Under MiCA, these terms have no legal meaning.
2. What are typically described as stablecoins or Asset-Backed Tokens,
have been split into two categories (EMT and ART) depending on the
asset that they are backed by (more on this in a future article).
3. Algorithmically-backed stablecoins are not included at all. In fact,
one article of MiCA specifically states that they are not to be
considered true ARTs, leaving some speculation as to whether they
are covered at all.
4. Security tokens are not included. The EU has stated that it believes
security tokens are already covered by existing legislation on
equity and securities, and are therefore not covered by MiCA.
5. NFTs and other similar assets are also not covered, again leaving
speculation as to whether they are included.
Crypto Asset Service Providers
The second thing that MiCA defines are called Crypto Asset Service
Providers, or CASPs. These are companies that deal in any of the above
listed crypto assets and to whom MiCA also applies. So how do you know
if your company is a CASP? Your company is considered a CASP if it
provides any of the following services to citizens of the EU:
1. custody and administration of crypto assets on behalf of third
2. crypto exchange services (running an exchange)
3. ‘crypto advisory’ services, defined as advice on investing in crypto
assets, NOT portfolio management
Other interesting terms
Now that we know what kinds of crypto assets, and what kind of crypto
asset service providers MiCA refers to, we can begin to dive a little
deeper into what the regulation says about these things, and how it
intends to govern them. Before we do that though, here are a few more
useful terms to know:
European Banking Authority (EBA) - EU body responsible under MiCA for supervising EMTs, and carrying out ‘enhanced regulation’ on EMTs AND ARTs, once an offering is defined as ‘significant’ by a National Competent Authority (more on this in a future article).
European Markets and Securities Authority (ESMA) - EU body responsible for supervising ARTs, unless considered ‘significant’ (at which point will be handed to EBA).
National Competent Authority (NCA) - A body within an EU member state that is designated by the EBA or ESMA to regulate and supervise crypto asset offerings and CASPs within that member state. This is an entity of a national government, not the EU.
With most of the key terms covered, we can begin our exploration of what
MiCA and other legislation means for Dusk and for Europe in general.