CoinDesk Report:
Author: Dante Disparte
Source: coindesk
Translation: Shanooba
On Sunday, the European Union’s milestone comprehensive digital asset regulation, the first wave, will come into effect. With the help of the regulatory market framework for crypto assets, Europe has achieved something that other jurisdictions, including the United States, are still avoiding: providing legal and regulatory clarity not only for a part of the digital asset market, but for the entire market.
Motivated by the entry of large tech companies (such as Meta’s Diem, formerly known as Libra) into the financial market or concerns about unregulated cryptocurrencies, Europe’s policy development has been highly coordinated over the past five years. MiCA will have a profound impact, permanently connecting digital assets with the real economy, and achieving this goal in a typical European way.
The tenth year of the crypto industry
In the first decade of the birth of cryptocurrencies, the industry’s most distinctive feature has been the shocking and cyclical prosperity and downturn, making it a unique market in many ways in the United States. Therefore, the US dollar is not only the pricing benchmark for digital assets (thanks to the steady growth of stablecoins, the value of stablecoins has now exceeded $150 billion), but also the reserve currency for internet finance, just as it plays a role in the real world. MiCA aims to address this issue by providing opportunities for successful euro-denominated stablecoins and a powerful consumer market of 441 million.
Although some aspects of MiCA are inherently protectionist, aimed at protecting European consumers and investors from fraud and risks in the rapidly developing cryptocurrency market, it also involves a certain degree of economic and technological sovereignty. The most obvious is that offshore stablecoins, referred to as global stablecoins in diplomacy, are not allowed under MiCA. Stablecoins pegged to other currencies must primarily comply with European e-money licensing requirements, which will require compliance with prudential, anti-financial crime, and other regulations. If stablecoin issuers provide other cryptocurrency services, they must obtain a second license, which can be a Digital Asset Service Provider (DASP), Virtual Asset Service Provider (VASP), or Crypto Asset Service Provider (CASP), depending on the jurisdiction. This requirement is a basic level of compliance for digital asset custody. In addition to these licensing requirements, the days of amorphous cryptocurrency companies that do not have substantial presence in the European Union are gone.
In fact, MiCA is not only about consumer and market protection, but also about employment development and economic competitiveness. Licensed entities must have responsible “minds and management” within the EU jurisdiction before they can operate throughout the federation through pan-European regulatory coordination—although national regulatory authorities still have some way to go to ensure the smooth implementation of MiCA across the common market.
Cryptocurrency and banking
For the survival connection between the cryptocurrency industry and the banking industry, MiCA marks a profound change that only the most serious participants can be prepared for. For example, in the category of recovery stablecoins denominated in US dollars, MiCA marks a well-known fiscal cliff, where unregulated or non-compliant tokens will eventually be delisted or cryptocurrency exchanges will greatly restrict their access.
The reason is simple. MiCA does not view stablecoins as fringe financial products or mere poker chips in the cryptocurrency gambling casino, but rather makes stablecoins comply with long-standing e-money rules. Therefore, all stablecoins offered by European cryptocurrency exchanges must comply with the rules of electronic money tokens. This gives token holders the right to redeem the underlying currency directly from the issuer at face value, strengthening collective accountability and consumer protection in an interrelated digital asset value chain—from wallets to exchanges, and finally to issuers. This model is in stark contrast to amorphous standards or lack of prudent protections to prevent nominally stable currencies like Terra Luna from being run on. If Terra Luna complies with equivalent regulations of US electronic money, such as state money transmission laws, consumers can better protect themselves from crises.
Under the current European model, all regulated stablecoins will now have a common regulatory foundation, which will not only encourage competition but ultimately lead to wider substitutability and interoperability in the EU market. Like all new rules or comprehensive regulations, MiCA is not perfect and is overly prescriptive in some areas to the point where EU policymakers are already considering MiCA 2.0, which could fill in some gaps in the system, such as non-fungible tokens (NFTs), decentralized finance, and other areas. While MiCA now provides clear rules for European cryptocurrency market participants, on the other side of the Atlantic, imperfect rules or lack of federal regulation make an industry flourish. Should the transatlantic technology rift widen? Or should the United States and key EU partners be eager to share digital public resources?
If US policymakers take a competitive stance against the EU in digital assets, then North America can consider a true “North American Free Trade Agreement for Digital Assets”. However, a lasting alternative is to form a transcontinental Western Digital Asset Alliance, which establishes common democratic values in these emerging markets and allows exponential technologies to shape the future.
Now that the world has MiCA, it is time for the United States to take action and reaffirm its global leadership in financial services regulation and innovation.
