No. 55 The Future of Crypto-Assets within the European Union – An Analysis of the European Commission’s Proposal for a Regulation on Markets in Crypto-Assets

Details

Author(s):
  • Beat König
Publish Date:
September 15, 2021
Publication Title:
European Union [EU] Law Working Papers
Publisher:
Stanford Law School
Format:
Working Paper
Citation(s):
  • Beat König, No. 55 The Future of Crypto-Assets within the European Union – An Analysis of the European Commission’s Proposal for a Regulation on Markets in Crypto-Assets, EU Law Working Papers No. 55, Stanford-Vienna Transatlantic Technology Law Forum (2021).
Related Organization(s):

Abstract

While some crypto-assets fall under the scope of existing EU financial services legislation, presently a majority of crypto-assets remains outside its scope. This paper aims to provide an overview to the European Commission’s proposal on filling this legislative gap: The European Commission’s proposal for a Regulation on Markets in Crypto-assets (MiCA) published on the 24th of September 2020 as part of the Digital Finance Package. According to the proposal, comprehensive new rules shall transpose the currently mostly unregulated market of crypto-assets in a highly regulated market. After an initial presentation of some key aspects of the distributed ledger technology as well as some terminology used in the crypto-community, this paper provides a brief overview to the Digital Finance Package and to the status quo of regulatory aspects of crypto-assets in the Union in order to illustrate the legislative gap the European Commission seeks to fill with its proposed Regulation. In its main part, the specific new provisions proposed by the European Commission with the MiCA are presented and analysed in detail.

The analysis of this paper suggests that according to the current draft of the MiCA, it is highly unlikely that any crypto-assets will remain unregulated within the Union. With a catch-all-definition of crypto-assets, every crypto-asset currently not covered by EU legislation will be under MiCAs material scope of application. Further, with a very broad definition of what is considered to be an ‘issuer of crypto-assets’, also cryptoassets without a known attributable responsible person or group of persons may nevertheless have an ‘issuer’ according to the MiCA: As soon as crypto-assets are offered to the public or admission of such crypto-assets to a trading platform for crypto-asset is sought, the person acting will have to comply with the provisions of the MiCA addressed at the ‘issuer’.

The newly proposed framework for crypto-assets is drafted along the lines of existing EU financial services legislation. However, it presents some notable deviations, be it for reasons of editorial mistakes that might be cured in the final version of the Regulation or due to the specific features of crypto-assets and the distributed ledger technology in contrast to established instruments in EU financial services. Further, the analysis of this paper suggests that the risks of ‘global stablecoins’ are not adequately approached by the proposal. MiCA proposes two new legal definitions of specific crypto-assets, namely ‘asset-referenced tokens’ (ART) and ‘electronic money tokens’ (EMT). These are two subtypes of crypto-assets commonly referred to as ‘stablecoins’, as they aim to maintain a stable value by referring to either one single official currency (EMT) or several official currencies, commodities, crypto-assets or a combination of such assets (ART). Issuers of such crypto-assets shall be more stringently regulated than issuers of crypto-assets other than ART or EMT under the scope of MiCA. In light of the anticipated systemic risks global stablecoins with a particularly wide adoption and a high frequency of cross-border transactions might pose, where an ART or EMT becomes very large in scale, EBA will deem it as ‘significant’ and thereby transpose supervisory powers to itself and subject the issuer of that crypto-asset to more stringent requirements. However, the definitions of ART and EMT are narrow and do not cover all possible constructions of stablecoins, most notably ‘algorithmic stablecoins’. Hence even if an algorithmic stablecoin grows very large in scale, according to the current draft it cannot be deemed ‘significant’ and no (additional) supervisory measures to mitigate a systemic risk could be taken.