The article focuses on the regulatory provisions of MiCA for ARTs, summarizing the key compliance points for European Stablecoin issuers in terms of authorization, obligations, reserves, and "significance".
Author: Liu Honglin, Founder of Shanghai Manqun Law Firm;
Bai Qin, Head of Hong Kong Office of Shanghai Manqun Law Firm;
Song Kewei, Associate Lawyer of Shanghai Manqun Law Firm
According to defillama data, the "total market value of Stablecoins has grown by 2.46% in the past week, currently reported at $182.489 billion. Among them, the total market value of USDT has grown by 0.07%, currently reported at $114.518 billion, with a market share of 69.82%." Stablecoin issuance has become an important growth point in the cryptocurrency market.
The European Union's "Regulation on Markets in Crypto-Assets" (MiCA) is "one of the most comprehensive digital asset regulatory frameworks to date", and since the entry into force of this law, Coinbase has announced that it will delist USDT for European users by the end of the year, and other exchanges have also taken relevant actions. This article will sort out the regulatory framework of MiCA for European Stablecoin issuers, providing compliance reference for enterprises and individuals entering the European crypto market.
It is worth noting that, due to the limited space, we cannot cover all the compliance requirements in the law, but have selected the important parts and made a preliminary interpretation and analysis based on the literal meaning of the provisions, such an interpretation cannot fully reflect the full content of the provisions, and is only for the reference of readers.
I. What is a Stablecoin? Definition and Classification of MiCA
Stablecoins are a type of Bit that is pegged to fiat currencies, commodities, or other Bits, with the aim of minimizing price volatility while utilizing the advantages of Bits.
Currently, in the regulatory framework of the European Union's "Regulation on Markets in Crypto-Assets" (MiCA), Stablecoins are mainly divided into Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs).
EMTs are Bits that maintain a stable value by pegging to 1 official currency. EMTs are like the "incarnation" of fiat currency in the Web3 domain, which can be analogous to CBDC (central bank digital currency) that can be issued by non-state agencies:
'Electronic money token' or 'e-money token' means a type of Bit that purports to maintain a stable value by referencing the value of one official currency.
ARTs, like EMTs, aim to maintain a stable value, but they achieve this through pegging to multiple assets, which may include multiple currencies, rights, etc.:
'Asset-referenced token' means a type of Bit that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.
This structure theoretically diversifies risk, but due to the diversification of the underlying assets, it requires relatively stricter supervision. Compared to traditional fiat currency, which is pegged to gold or backed by government credit, ARTs adopt a "portfolio" -like approach, which is more flexible, as it can diversify risk through multiple configurations of the underlying assets, or choose a single asset to maintain stability, so ARTs provide more choices for the design and innovation of Stablecoins.
II. Overview of Key Compliance Points for Stablecoin Issuers
The main content of the MiCA law is the various issuance and trading rules for ARTs and EMTs. Articles 16-47 (31 articles in total) are provisions for ARTs, and Articles 48-58 (10 articles in total) are provisions for EMTs. For the more diverse ARTs, MiCA's provisions are more detailed. For the sake of brevity, we will focus on ARTs as the main subject, and if we specifically emphasize ARTs or EMTs, we will reflect it in the name. If we only refer to "Stablecoins", it includes both ARTs and EMTs. According to the provisions of each chapter of MiCA, the relatively important compliance points are four, which are:
Authorization to offer asset-referenced tokens to the public and to seek their admission to trading
Obligations of issuers of asset-referenced tokens
Reserve of assets of issuers of asset-referenced tokens
Designation of "significant" asset-referenced tokens
III. Authorization to Offer Asset-Referenced Tokens to the Public and to Seek Their Admission to Trading
Eligibility
With regard to the issuance of ARTs, no person shall offer ARTs to the public in the Union or seek their admission to trading, unless that person is authorized as the issuer of ARTs and:
a) is a legal person or other entity established in the Union and authorized by the competent authority of its home Member State in accordance with Article 21; and
b) meets the requirements for credit institutions laid down in Article 17.
Crypto-Asset White Paper
The crypto-asset white paper for Stablecoins (EMTs/ARTs) should contain all of the following information:
Information about the issuer of the e-money token/asset-referenced tokens
Information about the e-money token/asset-referenced tokens
Information about the offer to the public of the e-money token/asset-referenced tokens or its admission to trading
Information on the rights and obligations attached to the e-money token/asset-referenced tokens
Information on the underlying technology
Information on the risks
Information on the reserve of assets
Information on the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the e-money token/asset-referenced tokens
The provisions for ARTs and EMTs overlap on items 1-6 and item 8, but for item 6 on information about the reserve of assets, ARTs have this requirement but EMTs do not, indicating that MiCA has relatively higher requirements for the asset reserve of ARTs Bits.
In addition, the issuer of Stablecoins should publish the approved crypto-asset white paper on its website, and should continue to disclose it on the website as long as anyone holds the Bit.
Finally, if the content of the white paper is incomplete, unfair or unclear, or misleading, the issuer of the Stablecoin shall be legally liable for it.
In summary, the disclosure of the Bit white paper is crucial for protecting the right to know of investors, and Stablecoin issuers should pay special attention to the completeness and accuracy of information disclosure in order to avoid unnecessary regulatory risks.
IV. Obligations of Issuers of Asset-Referenced Tokens
After passing the first hurdle and obtaining authorization, the issuer has gained access to issue Stablecoins in the EU, but this does not mean that everything is fine and the issuer can rest easy. The MiCA law has the following provisions for the obligations of ARTs issuers (Obligations of issuers of asset-referenced tokens):
Obligation to act honestly, fairly and professionally in the best interest of the holders of asset-referenced tokens: This obligation is mainly a principle-based guiding provision, which, although abstract, provides guidance for the subjective purpose of the issuer's actions.
Marketing communications: Any marketing communications related to Stablecoin transactions should be clear, unambiguous, and consistent with the Bit. MiCA has quite strict requirements for the issuance and statement of Stablecoins, trying to avoid provocative and tempting statements, and controlling the risk of hype from the source.
Ongoing information to holders of asset-referenced tokens: The issuer of Stablecoins must disclose information at least once a month on an ongoing basis. The disclosure of Stablecoin issuance is not a one-time event, but an ongoing process, and the issuer must ensure that the issuance information can be continuously obtained by regulators, investors and other stakeholders.
: Issuers of stablecoins should establish and maintain effective and transparent procedures to handle complaints received quickly, fairly and consistently. Issuers of stablecoins should establish a sound internal complaints handling and feedback mechanism to resolve conflicts within the platform. : Issuers of stablecoins should implement and maintain effective policies and procedures to identify, prevent, manage and disclose conflicts of interest between them. : Issuers of stablecoins should have sound governance arrangements, including a clear organisational structure, clearly defined, transparent and consistent lines of responsibility, effective procedures for identifying, managing, monitoring and reporting the risks to which they are or might be exposed, and adequate internal control mechanisms, including sound administrative and accounting procedures. : Issuers of stablecoins should at all times hold funds equal to the higher of: (a) €350,000; (b) 2% of the average amount of the reserve assets referred to in Article 36; (c) one quarter of the fixed overheads of the preceding year. Issuers of stablecoins also need to have a certain "reserve requirement" to address the risks that may exist in the process of issuing and trading virtual currencies. : Issuers of stablecoins should maintain a reserve of assets at all times, and these reserve assets should be legally segregated from the issuer's own assets to ensure that creditors have no right of recourse against the reserve assets in the event of the issuer's insolvency. Issuers need to carefully consider the legal structure of their assets to achieve the purpose of asset segregation and reduce this risk. : Issuers of stablecoins should establish and maintain a policy for the custody of the reserve assets to avoid the risk of excessive concentration of the reserve assets. : If issuers of stablecoins invest part of the reserve assets, they can only invest these assets in highly liquid financial instruments with minimal market risk, credit risk and concentration risk, avoiding unnecessary risks for higher returns. : Holders of stablecoins should have the right to redeem the reserve assets at any time, which requires the issuer to develop a sound policy for this permanent redemption right. : Issuers of EMTs are prohibited from granting any interest, including compensation, discounts, etc. in relation to EMTs. : If the stablecoin (ART/EMT) issued meets at least three of the following criteria during the reporting period, it may be designated as "important" and subject to additional regulatory requirements. : Quantoz Payments, a Dutch blockchain company, has obtained authorization from the Dutch central bank to issue electronic money and plans to launch euro and dollar-pegged tokens. This lays the compliance foundation for its future market expansion. Quantoz's EURQ is trying to carve out its own place in the euro stablecoin market, which is currently dominated by Circle's EURC and Societe Generale's EURCV. : This article summarizes the key compliance requirements for European stablecoin issuers under MiCA, covering authorization, obligations, reserves, and "importance". For any enterprise or individual planning or intending to issue stablecoins in Europe, compliance first is the fundamental way to control the operational risks of virtual currencies. In addition to strengthening their own compliance awareness and risk prevention, consulting compliance experts or lawyers is also an important way to prevent the risks of stablecoin issuance.
