1. What is MiCA? 

Markets in Crypto Assets regulation (MiCA) is the EU’s proposed regulatory scheme that governs the affairs of issuers of crypto-assets and crypto-asset service providers (CASPs) and protects crypto asset holders. Once implemented, MiCA will apply to anybody providing crypto asset services or issuing crypto assets within the EU.

2. Why does MiCA matter?

EU legislators aim to restore trust in crypto asset activities and services when MiCA will take effect in 2024 after a 12 to 18-month transition period. MiCA would bring forth increased legal certainty for various crypto assets that are presently not or only partially regulated under EU financial services law—coupled with other market integrity measures of MiCA, such regulatory clarity is expected to benefit developers, service providers, and investors alike.

3. What does MiCA cover?

MiCA defines crypto assets broadly and distinguishes distributed-ledger technology (DLT) assets based on their common attributes into “normal” crypto-assets (such as utility tokens) and more intensely regulated stablecoins (so-called asset-referenced tokens or e-money tokens). MiCA does neither regulate CBDCs nor (most) NFTs. MiCA will not apply to crypto asset services that are provided without an intermediary in a “fully decentralized manner”—although the definition of decentralization is still up to regulators and even a potential applicability for DAOs is conceivable, too.

4. What do market participants need to do to engage in crypto related activities and services under MiCA?

To provide services in crypto assets, including exchange-based services, a CASP must have a registered office in one of the EU member states and obtain licensing authorization from the relevant local authority. To offer and issue crypto assets, issuers that develop a protocol or similar mechanism or persons seeking admission to trading would be ordinarily subject to the so-called white paper requirement under MiCA. This means that an issuer is mandated to submit to EU regulators a document explaining the product characteristics and how the token or other crypto asset would operate on the blockchain. EU regulators would then determine whether the token-based activity falls under the dictates of MiCA. Issuers of stablecoins – in addition to their white paper requirement – will also need  to obtain a license beforehand.

5. What kinds of investor protection rules are contemplated by MiCA?

European Parliament member and MiCA proponent, Stefan Berger recently called FTX’s collapse a “Lehman Brothers moment” that “must be prevented,” which is “exactly what MiCA is for.” MiCA defines and prohibits various types of market manipulation, including CASP front running, insider trading, and so-called wash trading. MiCA establishes disclosure and transparency controls relating to these forms of market manipulation. It also equips regulators with a broad mandate to protect customers in case of any perceived wrongdoing.