- On Monday, EU lawmakers voted 28-1 to press ahead with the MiCA regulatory package
- The sweeping regulations affect stablecoins, exchanges, environmental issues and more
- What exactly is MiCA and how will it affect the crypto space?
This week, EU lawmakers voted overwhelmingly to proceed with a provisional version of the Markets in Crypto Assets (MiCA) framework, which will be the most sweeping piece of crypto regulation yet when it comes into effect. But what exactly is MiCA, and changes does it include? We review the five areas of the package that will impact crypto users the most.
Stablecoins Must be Backed 1:1
Stablecoins must be backed by 1:1 by reserves that are fully protected in case of insolvency, which amounts to a ban on algorithmic stablecoins. Furthermore, there will be a cap of €200 million in daily trading volume for stablecoins. Currently, market leading stablecoins such as USDT and USDC have daily trading volumes of €48.13 billion and €5.4 billion, respectively.
Stablecoins with over 10 millions users or €5 billion worth in circulation will be supervised by the European Banking Authority (EBA).
MiCA Will be Enforced in 2024
The EU Parliament passed MiCA in a vote in March this year, but ratification didn’t come until this week. There will be a grace period of around 12 months after being published in the bloc’s official journal, which is likely to happen next spring.
This means that MiCA will be enforced in mid-late 2024.
Exchanges Given More Responsibility
The European Securities and Markets Authority (ESMA) and the EBA will be in charge of monitoring crypto markets and will have the power to intervene in certain situations. For assets with no issuer, such as Bitcoin, exchanges will be required to provide information about potential risks, with the possibility of being liable for misleading contents.
Liabilities will also fall on exchanges and other wallet custodians in the event of hacks or preventable operational failures.
No Proof-of-Work Ban
There will be no ban on Proof-of-Work cryptocurrencies, which was voted down at the same time as MiCA was passed in March, but crypto asset service providers will have to publicise data regarding environmental impact.
It is not yet known what sort of information they will be tasked with providing, what they will even be able to provide or what the EU will do with it.
DeFi and NFTs not Impacted
DeFi protocols and NFTs were not included in the MiCA agreement, with the EU claiming that further legislative packages will tackle these sectors separately. However, NFTs with fractional ownership do fall under the law’s remit.
