The EU’s crypto legislation MiCA is getting a little closer. Loan Impact – Ledger Insights

The European Council has approved the Crypto Asset Markets Act (MiCA) and published the current version, but this is not the final step. The Council mainly consists of the heads of state of the member states. The European Parliament will still have the last word.

The Danish Parliament’s finance committee will then meet on 10 October, where a vote is expected. Then it goes to the rest of the Folketing.

MiCA divides crypto-assets into electronic money (stablecoins), tokens backed by assets that include stablecoins backed by other assets, and everything in between. Legislation on e-money and asset-based tokens will come into force 12 months after the bill is approved. And everything else applies 18 months later. So that means stablecoins in early 2024 and the rest in mid-2024.

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Different regulators are responsible for writing detailed rules. It is primarily the EBA for electronic money and ESMA for the rest.

There has been some fuss over caps on foreign currency-linked tokens. In reality, the limit of 1 million daily transactions or 200 million euros concerns all tokens that are referenced to assets that are not considered electronic money. So that would cover MakerDAO’s DAI in Europe. And if everyone started paying in gold-backed tokens, that would include these. That’s about all that is considered a threat to monetary sovereignty.

The legislation includes algorithmic stablecoins, but does not cover DeFi, NFTs and lending. Reports on these three topics will be published within 18 months of publication. In addition, there will be an additional report on “services related to the transfer of e-money tokens”.

Non-fungible fractional tokens are covered as fractions are considered fungible.

Even if the loans are not covered, they are something

Although the legislation is not within its scope, it has a significant impact on loans with clauses that have been included since the early versions.

There are clauses that issuers of e-money and asset-backed tokens cannot pay interest, nor can crypto service providers. Interest is defined quite broadly as almost any additional benefit. For example, if a crypto exchange gave users their own token, that would count. A significant portion of crypto lending involves stablecoins, which would prevent centralized lending. This may not apply to DeFi loans due to the lack of an identifiable crypto service provider.

In the past, crypto lender Nexo had an interesting way of circumventing similar rules for e-money. If a user paid in currency, they received a stablecoin of sorts, except it couldn’t be exchanged externally. We believe that rules for e-money do not apply if it is an internal platform.

Meanwhile, another important piece of legislation covering tokenized securities has been passed. The so-called DLT pilot scheme allows blockchain-based financial market infrastructures to operate with some limited legal exceptions and will enter into force in March 2023.


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