Over the coming weeks, we’ll be releasing a series of articles on regulations in and around the European Union, with a special focus on the Markets in Crypto Assets Regulation, better known as MiCA. Dusk Network is designed for safety and compliance with global regulation and local legislation. Building products that not only fit within existing and anticipated regulations, but grant our users the confidence to know that what they build with us is also in line with regulations, is all part of our company DNA. As such, we are paying special attention to MiCA, as it has the potential to be the most significant piece of crypto legislation ever passed.
In preparation for this series of articles, we’ll begin by going over some of the key terminology to be found in MiCA. The reason for this is that, being legislation, the way in which something is expressed, also known as wording, is extremely important. Confusingly, the MiCA definitions of certain words and terms may differ from what those of us in and around the industry might actually understand them to mean.
Types of Crypto Assets
The MiCA legislation begins by writing out specific definitions of what they consider to be a ‘crypto asset’ and then specifies three categories of these. The categories are as follows:
Electronic Money Token (EMT) – a DLT-based cryptographic token that is primarily used as a medium of exchange and which relates its value to a single fiat currency. Tether and Stasis Euro would be examples of this.
Asset-Referenced Token (ART) – a DLT-based cryptographic token that is primarily used as a medium of exchange and which relates its value to more than one fiat currency, one or more cryptocurrencies, or one or more other assets. PAX Gold and DIAM would be examples of this.
Utility Token – a DLT-based cryptographic token whose primary use is to allow access to a service that is exclusively provided by the same company that created the utility token. An example of this would be Filecoin or Binance Coin.
There are several cryptocurrencies that clearly fall into the MiCA definition of a ‘crypto asset’, but which do not fall neatly into the above categories. Therefore, we can consider them to be a fourth category:
Cryptocurrency – a DLT-based cryptographic token that is primarily used as a medium of exchange. BTC and ETH would be examples of this.
We can observe a few interesting things from this classification, namely:
- There is no place for common terms such as stablecoin or Asset-Backed Token. Under MiCA, these terms have no legal meaning.
- What are typically described as stablecoins or Asset-Backed Tokens, have been split into two categories (EMT and ART) depending on the asset that they are backed by (more on this in a future article).
- Algorithmically-backed stablecoins are not included at all. In fact, one article of MiCA specifically states that they are not to be considered true ARTs, leaving some speculation as to whether they are covered at all.
- Security tokens are not included. The EU has stated that it believes security tokens are already covered by existing legislation on equity and securities, and are therefore not covered by MiCA.
- NFTs and other similar assets are also not covered, again leaving speculation as to whether they are included.
Read full press release here.