The European Union's Markets in Crypto-Assets Regulation (MiCA) is set to transform the crypto landscape within the European Economic Area (EEA). With the introduction of MiCA, a unified regulatory framework for crypto-assets is being established, promoting innovation while ensuring consumer protection, market integrity, and financial stability. 

As MiCA begins its gradual entry into effect, its key objectives include 1) replacing fragmented regulations in EU Member States with one unifying and comprehensive framework, 2) setting clearer rules for crypto-asset service providers and issuers, and 3) providing more certainty in the regulation of crypto-assets not covered by existing financial regulations.

MiCA’s Impact on Stablecoins*

On June 30, 2024, MiCA's Titles III and IV, which govern the stablecoin regime, came into effect. Functionally, this regulatory framework categorizes stablecoins into e-money tokens (EMTs) and asset-referenced tokens (ARTs). MiCA mandates that stablecoin issuers must meet specific criteria to operate within the EEA.

• E-Money Tokens (EMTs): EMTs encompass stablecoins such as Tether’s USDT and Circle’s USDC which derive their value by referencing a single official currency. Issuers of EMTs need authorization as credit institutions or electronic money institutions (EMIs) under the applicable EU legislation. 

• Asset-referenced Tokens (ARTs): ARTs are designed to have a stable value by referencing another value, a right, or a combination of multiple values, such as official currencies, commodities, and/or other crypto assets. Notable examples are Tether’s XAUt, PAXG, and others. ART issuers must maintain a reserve of backing assets and receive approval from relevant authorities, ensuring robust protection against market and currency risks.

• MiCA introduces a cap on stablecoins that are not tied to an official EU currency when used as a means of exchange. The limits are set at 1 million transactions per day, and EUR 200 million trading volume per day.

While the crypto industry faces significant adjustments with MiCA’s implementation, established issuers are already taking steps to adjust to these measures. 

At Nexo, we are dedicated to maintaining the highest standards of compliance and transparency. Any updates in our offerings will be communicated to our users in advance, reflecting our commitment to keeping you informed and secure in your crypto holdings.

*ARTs and EMTs are collectively referred to as "stablecoins" in this blog post as they both aim to maintain a stable value by having it pegged to an official currency, an asset, a right or a combination thereof.

MiCA Beyond Stablecoins

MiCA is far more expansive than just regulation for stablecoins with further legislation to gradually enter into effect on December 30, 2024. The framework will also mandate strict compliance standards and pre-contractual disclosures of crypto-assets' risks and measures to protect investors from fraud and financial crimes. These include disclosure of inside information and strict operational obligations to prevent market abuse and maintain a fair market environment.

MiCA also ensures anti-money laundering (AML) and counter-terrorism financing (CTF) compliance by crypto-asset service providers and crypto-asset issuers in accordance with the EU's Anti-Money Laundering Directive (AMLD) which will work in confluence with the Transfer of Funds Regulation (TFR) introducing the Financial Action Task Force's so-called "travel rule".

At Nexo, we view MiCA as a positive step towards greater regulatory clarity and safety in the crypto industry. We are developing a pan-EU holistic strategy to align with MiCA’s requirements. We also adhere to Nexo’s sustainable business model which has included strict collateralization requirements, automation, proactive conversations with regulators globally, prudent risk management, and stringent KYC and AML checks on our platform since the very inception of the company in 2018.

In doing so, we aim to ensure that our operations remain compliant with the new regulatory framework, thereby contributing to the sustainable growth and innovation of the crypto market.

What the Future Holds

The implementation of MiCA has led various crypto exchanges and issuers to adapt their strategies. While change can be daunting, MiCA is expected to enhance industry credibility, attracting institutional investors through regulatory clarity. MiCA offers opportunities for stability, security, and growth and Nexo is committed to navigating these changes responsibly, ensuring a secure, innovative, and clearly communicated crypto experience for our clients.

These materials are accessible globally, and the availability of this information does not constitute access to the services described, which services may not be available in certain jurisdictions. These materials are for general information purposes only and not intended as financial, legal, tax or investment advice, offer, solicitation, recommendation, or endorsement to use any of the Nexo Services and are not personalized, or in any way tailored to reflect particular investment objectives, financial situation or needs.

Digital assets are subject to a high degree of risk, including but not limited to volatile market price dynamics, regulatory changes, and technological advancements. The past performance of digital assets is not a reliable indicator of future results. Digital аssets are not money or legal tender, are not backed by the government or by a central bank, and most do not have any underlying assets, revenue stream, or another source of value. 

Independent judgment based on personal circumstances should be exercised, and consultation with a qualified professional is recommended before making any decision.