Europe’s MiCA will take effect on Sunday, ushering in a new age of transparent crypto regulation

• The Markets in Crypto-Assets (MiCA) regulation is a legislative framework established by the European Union to regulate crypto assets and related services within the region.
• MiCA was adopted by the European Parliament in 2023 and will come into effect on Sunday, although not all at once.

MiCA provides regulatory clarity to the entire digital assets market across the Eurozone, making Europe one of the first Western countries to implement a clear framework that crypto exchanges, digital assets companies, and stablecoin issuers can adopt to remain compliant.

The framework aims to protect European investors from the fraud and risks plaguing the crypto markets while fostering innovation, economic competitiveness, and the interest of the Eurozone.

MiCA pushes for innovation in its stipulations around stablecoins, which will allow Euro-denominated stablecoins to replace the dollar-denominated variant. Under the new rules, stablecoins will be treated as electronic money, subjecting issuers to the same levels of compliance as traditional banks and money transmitters, including a 1:1 redemption to the Euro.

While the framework pushes for bold reforms, it also emphasizes protecting the European investor by mandating digital service providers obtain licenses as either digital asset service providers (DASP), virtual asset service providers (VASP), or crypto asset service providers (CASP).

Global stablecoins are not allowed under MiCA, and stablecoins pegged to other cryptocurrencies must primarily comply with European e-money licensing requirements. This would entail abiding by prudential, financial-crime compliance, and other rules.

To boost job and economic growth, licensed entities must maintain a local presence within the EU, which will serve as a base for their European operations.

While MiCA is a step forward, it is not without fault. Some of its faults include the cost of compliance, which could be burdensome on smaller crypto exchanges and service providers, vague (virtually non-existent) stipulations around decentralised finance, and a lack of flexibility in some stipulations, like those around stablecoins.