The Markets in Crypto-Assets (MiCA) regulation is a comprehensive regulatory framework instituted by the European Union (EU).
At its core, MiCA creates common rules and licensing requirements for crypto-asset service providers operating across the EU. Any company offering services like custody, trading, advisory, etc. must register with national regulators and meet organizational, operational, and business conduct standards. These include measures to protect client assets, prevent conflicts of interest, and ensure market transparency.
Overall, MiCA provides long-awaited regulatory clarity about which activities require licensing, how crypto can be marketed and sold to the public, and more uniform protections for users across Europe. While decentralized finance and non-fungible tokens are not yet covered, the regulation represents a milestone for crypto oversight globally.
MiCA creates regulations for three main categories of crypto-assets that use distributed ledger technology:
To operate legally under MiCA, both crypto-asset service providers (CASPs) and crypto-asset issuers face extensive regulations and licensing requirements.
For CASPs, offering services like exchanges, wallets, custody and trading advice, MiCA demands compliance across three key areas:
For crypto-asset issuers, key obligations relate to launch compliance:
On top of transparency requirements, issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs) must implement stabilization mechanisms and reserves to maintain a steady value. Redemption rights also apply for certain fiat-backed EMTs. Failures can lead to hefty fines.
Taken together, these obligations aim to balance innovation with appropriate oversight across crypto-asset value chains. By ensuring service quality, financial stability and investor protection, MiCA seeks to unlock the European crypto market's growth potential.
As asset-backed cryptocurrencies designed to minimize volatility, stablecoins deemed asset-referenced tokens (ARTs) or electronic money tokens (EMTs) face heightened regulations under MiCA. Rules aim to ensure stability mechanisms work as advertised.
All stablecoin issuers must implement provisions to maintain a reliable peg to underlying assets like fiat currencies or commodities. These stabilization arrangements could involve collateralization, currency reserves, or algorithms to balance supply and demand.
Issuers also need to uphold minimum liquidity thresholds. Asset pools must enable timely settlement of redemptions, with requirements tiered based on transaction volumes. For instance, fiat-backed tokens with over €5 million daily transactions should hold low-risk assets covering at least 100% of liabilities.
Governance standards are equally strict - issuers must appoint independent board members with crypto risk and stabilization expertise. Plus real-time monitoring should track reserve levels, program operations, and exploits.
On top of transparency, governance and reporting duties shared by other crypto-assets, these provisions create accountability around stablecoin management. Strict authorization procedures also apply for EMTs before public distribution.
By ensuring adequate stabilization and sufficient liquidity, MiCA aims to prevent stablecoin collapses - securing wider financial stability. The collapse of TerraUSD highlighted the urgency of regulation. So stablecoins face the highest bar.
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