Europe's MiCA is finally here. How will the United States respond?

Author: Dante Disparte Source: coindesk Translation: Shan Ouba, Golden Finance

On Sunday, the first wave of the European Union's landmark comprehensive digital asset regulatory law will come into effect. With the Crypto Asset Regulatory Market Framework, Europe has succeeded in doing what other jurisdictions, including the United States, are still avoiding: providing legal and regulatory clarity not just for a part of the digital asset market, but for the entire market.

Driven by the entry of big tech companies (such as Meta's Diem (formerly Libra) plan) into financial markets, or out of concerns about uncontrolled cryptocurrencies, policy developments in Europe over the past five years have been very coordinated. MiCA will have a far-reaching impact, permanently connecting digital assets and the real economy, and doing so in a typically European way.

Ten Years of Crypto

For much of the first decade of cryptocurrencies, the industry has been characterized by alarming and recurring boom-and-bust cycles, which in many ways make it a uniquely American market. As a result, the dollar is not only the pricing benchmark for digital assets (thanks to the steady growth of stablecoins, which are now valued at over $150 billion), but it is also the reserve currency for internet finance, just as it plays a role in the real world. MiCA aims to address this by giving euro-denominated stablecoins a chance to succeed and a 441 million strong consumer market, which will be classified as electronic money tokens under the EU’s new rules. While some aspects of MiCA are protectionist in nature, designed to protect European consumers and investors from the fraud and risks posed by the rapidly evolving cryptocurrency market, it also involves a degree of economic and technological sovereignty. Most notably, offshore stablecoins (diplomatically known as global stablecoins) are not permitted under MiCA. Stablecoins pegged to other currencies must primarily comply with Europe’s e-money licensing requirements, which will require compliance with prudential, financial crime compliance and other rules. If a stablecoin issuer offers other crypto-asset services, it must obtain a second license – either 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 baseline level of compliance for the custody of digital assets. Beyond these licensing requirements, gone are the days of amorphous crypto companies with no substantial presence in the EU.

Indeed, MiCA is not only about consumer and market protection, but also about job development and economic competitiveness. Licensed entities must have responsible “heads and management” in EU jurisdictions before they can operate across the federation through pan-European regulatory harmonization – although national regulators still have some way to go before they can ensure that MiCA takes effect smoothly across the common market.

Crypto and Banking

For the cryptocurrency industry and its existential ties to the banking sector, MiCA signals profound changes that only the most serious players will be ready for. For example,in the category of resurgent stablecoins with a USD reference currency, MiCA signals a proverbial fiscal cliff, where unregulated or non-compliant tokens will eventually be delisted or crypto exchanges will significantly restrict access to them.The reason is simple. Rather than treating stablecoins as fringe financial products or mere poker chips in a crypto casino, MiCA brings stablecoins in line with long-standing e-money rules. As a result, all stablecoins offered by EU crypto exchanges must comply with the rules for e-money tokens. This gives token holders the right to redeem the underlying currency at par directly from the issuer, a way to strengthen collective accountability and consumer protection across the interconnected digital asset value chain – from wallets to exchanges and ultimately to issuers. Contrast this model with the amorphous standards or lack of prudential safeguards to prevent a run on the notional stablecoin Terra Luna. Consumers would be better protected from the crisis if Terra Luna were subject to the equivalent of US e-money, i.e. state money transmission laws.

Under the current EU model, all regulated stablecoins will now have a common regulatory basis, which will not only encourage competition but will ultimately lead to wider fungibility and interoperability in the EU market. Like all new rules or comprehensive regulations, MiCA is imperfect and in some places too prescriptive, so much so that EU policymakers are already considering MiCA 2.0, which could fill in some of the gaps in the regime, such as non-fungible tokens (NFTs), decentralized finance, and other areas. While MiCA now provides clear rules for European cryptocurrency market participants, on the U.S. side of the Atlantic, imperfect rules or lack of federal regulation have allowed an industry to flourish. Should the transatlantic technological rift widen? Or should the United States and key EU partners aspire to share the digital commons?

If U.S. policymakers adopt a competitive posture toward the EU on digital assets, then North America could consider a true “NAFTA for digital assets.” However, a lasting alternative would be to form a transcontinental Western digital asset alliance that would enshrine shared democratic values ​​in these emerging markets and let exponential technologies shape the future.

Now that the world has MiCA, it’s time for the United States to take action and reassert its global leadership in financial services regulation and innovation.