Interpretation of the EU MiCA Act, how can virtual currency custody services comply with the law?

The EU Crypto-Asset Market Regulation Act (MiCA) is "one of the most comprehensive digital asset regulatory frameworks to date".

The total market value of stablecoins has increased by 2.46% in the past week and is now reported at US$182.489 billion, according to DefiLlama data. Among them, the total market value of USDT increased by 0.07% and is now reported at US$114.518 billion, with a market share of 69.82%.

The issuance of stablecoins has become an important growth point in the cryptocurrency market. With the coming into effect of the EU Crypto-Asset Market Regulation Act (MiCA), which is "one of the most comprehensive digital asset regulatory frameworks to date", Coinbase has announced that it will remove USDT for European users by the end of the year, and other exchanges have also taken related actions. This article will sort out MiCA's regulatory framework for EU stablecoin issuers and provide compliance references for companies and individuals entering the EU crypto market.

In Mankiw Blockchain, we have already had a basic introduction to MiCA (see: Interpretation of the EU MiCA Act, how can virtual currency custody services comply with the law? | Mankiw Web3 Legal Education ).

It is worth noting that due to space limitations, we cannot cover all compliance provisions in the Act. Instead, we select important parts and conduct preliminary explanation and analysis based on the literal meaning of the provisions. Such explanation cannot fully reflect the entire content of the regulations and is for readers' reference only.

1. What is a stablecoin? Definition and classification of MiCA

Stablecoins are cryptocurrencies whose value is pegged to assets such as fiat currencies, commodities, and cryptocurrencies. They are designed to take advantage of the advantages of cryptocurrencies while minimizing price volatility.

Currently, in the regulatory framework of the EU's Markets in Crypto-Assets regulation (MiCA), stablecoins are mainly divided into Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs) .

EMTs refer to currencies that maintain a stable value by being pegged to an official currency. EMTs are very much like the incarnation of real-world fiat currencies in the Web3 field, and can be likened to CBDCs (central bank digital currencies) that can be issued by non-state agencies:

'Electronic money token' or 'e-money token' means a type of crypto-asset that purports to maintain a stable value by referring the value of one official currency.

ARTs, like EMTs, aims to maintain stable value, but it does so in a different way: it does so by pegging to multiple assets, which may include multiple currencies, rights, etc.:

'Asset-referenced token' means a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.

This structure theoretically disperses risks, but due to the diversification of underlying assets, it requires relatively stricter supervision. Compared with traditional fiat currencies, which are pegged to gold or backed by government credit, ARTs adopt a similar "portfolio" approach, which is more flexible. It can disperse risks through multiple configurations of underlying assets, or choose a certain asset to maintain stability. It can be said that ARTs provide more options for the design and innovation of stablecoins.

II. Overview of the key points of regulation of stablecoin issuers

The main content of the MiCA Act is the various issuance and trading rules for the two stablecoins, ARTs and EMTs. Among them, Articles 16 to 47 (a total of 31 articles) are regulations for ARTs, and Articles 48 to 58 (a total of 10 articles) are regulations for EMTs. MiCA's regulations are more detailed for ARTs, a more diversified stablecoin. For the sake of simplicity, we will summarize the key points based on ARTs. If ARTs or EMTs are emphasized separately, we will reflect it in the name. If it only refers to "stablecoins", both ARTs and EMTs are included. According to the provisions of each chapter of MiCA, there are four more important compliance points, which are:

1. Authorisation to offer asset-referenced tokens to the public and to seek their admission to trading

2. Obligations of issuers of asset-referenced tokens

3. Regulatory reserves of stablecoin issuers (Reserve of assets)

4. Identification of “significant” stablecoins (Significant asset-referenced tokens)

3. Seeking authorization for the public issuance and trading of ARTs

Qualifications

In relation to the issuance of ARTs , a person may not publicly offer ARTs in the EU, or seek to be admitted to trading, unless that person is authorised as an issuer of ARTs and :

a) legal persons established in the Union and authorised by the competent authorities of their Member States in accordance with Article 21