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Tomasz Tomczak, Crypto-assets and crypto-assets’ subcategories under MiCA Regulation, Capital Markets Law Journal, Volume 17, Issue 3, July 2022, Pages 365–382, https://doi.org/10.1093/cmlj/kmac008
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The aim of MiCA is to deal with the unregulated part of crypto-assets markets. Generally speaking, if a certain crypto-asset is currently unregulated, when MiCA comes into force, it will be brought, at least to some extent, under the MiCA regulatory regime.
Among other things, MiCA excludes financial instruments from its scope and, to some extent, electronic money. However, to draw a precise demarcation line between already existing European Union (EU) financial markets legislation, and MiCA is not an easy task. When MiCA comes into force, the lack of the definition of the financial instrument comprised in the EU regulation may lead to regulatory arbitrage.
MiCA does not provide a comprehensive catalogue of tokens. We may find tokens which fulfil the MiCA crypto-asset definition, but do not fall under any of the three subcategories distinguished by MiCA.
MiCA does not provide the definition of a ‘stablecoin token’. Asset-referenced tokens and e-money tokens may be classified as stablecoins.
Since in order to maintain stable value, asset-referenced tokens may refer to a variety of assets, in practice they may occur to be not as ‘stable’ as they are often presented. Furthermore, it seems that there will be huge differences in the stability of the value of different asset-referenced tokens.
Due to the limited negotiability, the utility tokens constitute the least significant of the three types of tokens distinguished by MiCA.
Including the phrase ‘similar technology’ in the definition of crypto-assets seems not to be in line with the innovation friendly approach as declared by the EU.
Electronic money is excluded from MiCA only if it does not fall under the MiCA e-money token definition. Such an approach raises some doubts whether MiCA respects the technology neutral approach in reference to e-money tokens.
1. Introduction
A quite recent explosion in crypto-assets1 indicated that they currently constitute one of the most vividly discussed topics.2 Taking into account the present worldwide trend regarding regulation of crypto-assets, and especially the fact that many European Union (EU) Member States decided to introduce bespoke regimes for crypto-assets,3 it is no wonder that EU has also decided to take some legislative steps. In September 2020, MiCA Regulation was presented by the EU Commission.4 In March 2022, amendments by the European Parliament to the Commission proposal of MiCA were presented (hereinafter the Amended Version of MiCA).5 As we can read in the MiCA Explanatory Memorandum, one aim of this proposal is to ensure a level playing field for crypto-assets market participants.6 MiCA constitutes a regulatory response to the fact that Member States have recently legislated on issues related to crypto-assets leading to market fragmentation.7
The MiCA Regulation currently consists of 126 articles, a long introduction (79 Recitals)8 and a 14-page-long Explanatory Memorandum.9 Therefore, MiCA deserves separate and complex research. Furthermore, most probably, we are still not dealing with its final version, although it is assumed that the core of the regulation will not change. Similarly, the definition of ‘crypto-assets’ and introduced crypto-asset subcategories (tokens) seem to constitute the backbone of MiCA. Since the qualification of a certain virtual asset as a crypto-asset and/or as a certain type of a token may be decisive to determine whether MiCA Regulation applies at all or which chapters of it apply, this article seems to be needed.10
The article is structured as follows: Section 2 provides some critical reflections on the MiCA definition of crypto-assets. Section 3 does the same, but with reference to the definitions of asset-referenced tokens, e-money tokens and utility tokens, ie the subcategories of crypto-assets distinguished under MiCA. In Section 3, there can also be found considerations regarding whether, within the definition of crypto-assets, we are able to recognize tokens other than those explicitly distinguished by MiCA. The article ends with a short summary. The main goal of the article is to indicate some uncertainty as to the scope of MiCA and to provide some critical reflections.
2. Definition of crypto-asset
As the name of the MiCA Regulation suggests, it refers to markets in ‘crypto-assets’. What should be understood by this mysterious term? Fortunately, Article 3 of MiCA provides a glossary. Article 3(1) no 2 states that for the purposes of the MiCA Regulation, ‘crypto-asset’ shall mean:
a digital representation of a value or a rights that uses cryptography for security and is in the form of a coin or a token or any other digital medium which may be transferred and stored electronically, using distributed ledger technology or similar technology.11
Such a definition is not very surprising since quite a similar one can be found in, eg, the European Securities and Markets Authority’s (ESMA) previous documents.12 However, two important remarks shall be made.
First, it refers to distributed ledger technology (DLT) or ‘similar technology’. Such wording may be questionable. It seems that the main ideas behind regulating crypto-assets were to deal with the new challenges posed by DLT13 and to provide legal certainty.14 In one of the ESMA definitions of crypto-assets, there is only a reference to DLT.15 When we speak about a ‘similar technology’, follow-up questions arise. What we should understand by this term? Are we dealing with a regulation which provides ‘a sound legal framework, clearly defining the regulatory treatment of all crypto-assets’,16 especially as the MiCA DLT definition may be seen as quite short and vague.17 For instance, if we assume, inconsistently with the DLT definition, that we may have the DLT, where the data are not entirely encrypted, we may consider whether such a technology will be treated as a ‘similar technology’. It should be noted that in the Commission’s version of MiCA (first version) the problem was even greater since the definition of ‘crypto-asset’ did not refer to cryptography at all. Therefore, it was possible to classify a token as a crypto-asset even if there were no cryptography for security purposes. However, the issue is still very important since, whether we are dealing with a ‘similar technology’ or not, it may be of a decisive nature in regard to the interpretation, ie if we are inside the MiCA regulatory burden or not.18 As was mentioned above, DLT challenges were one of the triggers for MiCA. The question should be asked whether we have a new and ‘similar’ technology and if it should fall under MiCA. It would be especially problematic if the broad understanding of the ‘similar technology’ were adopted. Should a similar but different technology not be treated by a different regulation? Too quick regulation of certain innovations may simply kill them.19 Another question that should be answered is whether such a definition of crypto-assets is in line with one of the priorities included in the new Strategy on Digital Finance for the EU Financial Sector:20 to ensure ‘that EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies’?21 Alternatively, does it fulfil one of the four main objectives of MiCA, which is to support innovation?22 Would it not be better to wait until the ‘similar technology’ matures and at that time either provide a new regulation or change the scope of the MiCA regulation? It seems to be ‘unfair’ to new technologies that it was a few years before DLT was regulated, allowing it to develop quite freely,23 but other, new and similar technologies will fall automatically under MiCA. It would be especially problematic if MiCA Regulation is not appropriate to deal with such a technology, in the same way as the current regulations were not able to deal properly with DLT.24 Regardless of the above critical thoughts and questions, in the Commission’s version of MiCA there was some hope. Article 3(2) of MiCA empowered the European Commission to adopt delegated acts in accordance with MiCA Article 121 to specify technical elements of the definitions laid down in Article 3(1), and to adjust those definitions to market developments and technological developments.25 Therefore, it was possible to optimistically assume that the Commission will stick to its innovation-friendly approach and specify those technical elements quite narrowly to properly limit the scope of the crypto-assets definition. However, in the Amended Version of MiCA, Article 3(2) was deleted and, to some extent, ‘replaced’ by a new Article 2(2a) which provides the Commission with the power to adopt the regulatory technical standards.26 Thus, it seems that it will be left for the case law to finally specify the notion of ‘similar technology’. Such an approach is not very market friendly; we will probably wait a few years after the date of entry into force of MiCA for some judgments in that regard.
Secondly, the crypto-assets definition is very broad. If we adopt the broad understanding of the ‘similar technology’ notion, we may say that crypto-assets are virtually something digital that uses cryptography for security.27 Seeing the title of the MiCA Regulation and reading only the definition of crypto-assets, the conclusion may be that MiCA refers to a huge amount of digital assets. However, we should not forget about Article 2(2–6) of MiCA which provides important exclusions from its scope. Very broadly and quite imprecisely, we may say that those exclusions refer to financial instruments, deposits, structured deposits, securitizations and, to some extent, electronic money.28 The above-mentioned remarks lead to the conclusion that if something, for example an existing financial instrument such as bonds, were subject to the existing regulations, as a rule, it would still be subject to those regulations regardless of the fact that such an instrument is based on DLT or a similar technology. In other words, it would not be regulated under MiCA.29
In this article, only two very important exclusions will be elaborated further. First of all, Article 2(1)(b) of MiCA excludes:
electronic money as defined in Article 2, point (2), of Directive 2009/110/EC [Electronic Money Directive.],30 except where they qualify as electronic money token under this Regulation.
In other words, ‘traditional’ electronic money is excluded from the scope of MiCA unless we are dealing with electronic money tokens. This is important since it is an exception to the above-mentioned conclusion that if something is already managed under the existing regulations, it will be still regulated by them, not by MiCA. In other words and as an example, if we have a financial instrument based on DLT, the existing regulations will apply to it, not MiCA. But, if we have electronic money in the meaning of the Electronic Money Directive, but such money also fulfils the premises of the electronic money token definition under MiCA, it will be regulated by MiCA.31
A second exclusion is also important. According to Article 2(2)(a) of MiCA, the Regulation does not apply to crypto-assets that are qualified as:
financial instruments as defined in Article 4(1)(15) of Directive 2014/65/EU [MiFID II directive].
In the above-mentioned Article of the MiFID II Directive, we can read that financial instruments mean those instruments specified in Section C of Annex I.32 In this Annex, we can find a list of such instruments.33 However, such a definition and the list are not very helpful since we are still dealing with ‘a directive’. As mentioned by the ESMA, the MiFID II Directive was differently transposed into various national laws.34 While some Member States employed a restrictive list of examples to define financial instruments, others use broader interpretations.35 This is a huge problem for two reasons. First of all, the same ‘virtual-asset’ in a certain Member State can be seen as a financial instrument and, therefore, outside of MiCA Regulation; in other states, it will not be classified as a financial instrument and thus will be inside MiCA. This could hamper one of the main above-mentioned aims of the regulation, ie to provide a level playing field for crypto-asset services providers.36 Secondly, such a situation can encourage especially the issuers of crypto-assets to regulatory arbitrage.37 The issuers may look for these EU jurisdictions where their crypto-assets will not fall under the financial instrument definition. Therefore, they will fall under less cumbersome regulatory standards.38 The above-described problem is complex and not easy to tackle. It may only be proposed that the definition of a financial instrument be included in an EU regulation, not a directive. However, it seems that EU Member States will not be very eager to waive their own definitions of financial instruments; therefore, this postulate seems to be easier said than done.39 Note that the indicated problem has been noticed during the legislative works regarding MiCA. In the Amended Version of MiCA, Article 2(2a) has been added which looks as follows:
For the purpose of paragraph 2, crypto-assets shall qualify as financial instruments where they meet the criteria and conditions to be deemed equivalent in substance to any of the instruments referred to in Section C of Annex I to Directive 2014/65/EU, irrespective of their form.
ESMA shall develop draft regulatory technical standards outlining the criteria and conditions for establishing when a crypto-asset is to be considered to be equivalent in substance to a financial instrument irrespective of its form, as referred to in the first subparagraph.
ESMA shall submit those draft regulatory technical standards to the Commission by … [12 months after the date of entry into force of this Regulation].
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the second subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
In brief, it seems that MiCA will want to adopt a functional rather than a formal approach to the notion of financial instruments. Furthermore, the Commission in cooperation with ESMA will help to draw a line between MIFID II financial instruments and crypto-assets which fall under MiCA.40 However, an important question should be asked. If Member States cannot agree on a regulation in which the definition of the financial instrument is included, what path would offer a solution and ‘circumvent’ the imperfections caused by Member States implementing the directive in different ways?
In conclusion, even if the MiCA definition of crypto-assets is very broad, we have to bear in mind that important classes of virtual assets have been excluded from the MiCA’s scope. More importantly, though, even if a financial instrument is based on DLT or a similar technology, it will fall under the existing EU financial markets legislation, not under the regulatory umbrella of MiCA. Thanks to such an approach, we can see that the principle of technological neutrality is respected.41 The fact that a financial instrument is based on DLT or a similar technology will not mean that it will escape the existing regulations. However, as is accurately indicated in the literature, such an approach would have ‘sense if the terms used are clearly defined and their limits clearly established’.42 The indicated vague scope of the EU financial laws will probably raise many delimitation problems and the question may be asked whether the new Article 2(2a) is a proper way to solve them. The question is even more complex in the case of e-money.43 Generally speaking, if a certain crypto-asset is currently unregulated, when MiCA comes into force, it will be brought, at least to some extent, under the MiCA regulatory regime.44
3. Different types of tokens
If MiCA was to be limited to defining crypto-assets and, later on, regulating them, probably we would be dealing with quite poor legislation. Crypto-assets may serve different functions and may have different features.45 Therefore, the typical approach is to distinguish, within the definition of crypto-assets, between different types of tokens. In MiCA Regulation, we can find the following categories: A similar classification can be found, for example, in the ESMA documents.46 Each of these types should be considered separately.
Asset-referenced token;
Electronic money token/e-money token;
Utility token.
Asset-referenced token
In the MiCA glossary, the first type of token which is defined is an asset-referenced token. Asset-referenced tokens are:
a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referring to any other value or right or combination thereof, including one or several official currencies of a country.47
It may be indicated—as an example—that currently tether tokens would probably fall under this notion.48
The following conclusions can be made on the basis of the above definition. First, a token, in order to be classified as an asset-referenced token, must fulfil the premises of the MiCA crypto-asset definition. Since the definition is very broad, the fulfilment of this requirement will not be difficult.49 Secondly, the token will purport to maintain a stable value. The important thing is that it does not have to have a stable value but only purports to have it.50 Subsequently, the definition specifies how the token shall purport to maintain it, ie by referring to certain assets. In the Commission’s version of MiCA (first version) it was indicated that the token may refer to ‘several commodities, crypto-assets, fiat currencies that are legal tender or a combination of such assets’. Previously such a token could refer to only one commodity, one crypto-asset, but ‘not only one fiat currency that is legal tender’. That was essential since the reference to only one fiat currency constituted a demarcation line between asset-referenced tokens and e-money tokens.51 In the Amended Version of MiCA the definition allows an asset-referenced token to refer to only one official currency of a country. However, the modified definition indicates that if a token is classified as an electronic money token, it cannot be simultaneously classified as an asset-referenced token. Thus, currently the demarcation line is in a different place and to classify a token as an asset-reference token it must first be determined that it does not fall under the definition of e-money token.52
As already indicated, the asset-referenced token purports to maintain a stable value by referring to any other value or right or combination thereof. The previous definition explicitly stated that such a token, to maintain a stable value, may refer to crypto-assets. The new definition seems to be broader it that respect (‘any other value or right’) thus, it does not change the conclusion.53 The inherent feature of many crypto-assets is their unstable value;54 therefore, the question may be asked whether such a reference will not be limited only to certain types of crypto-assets which usually maintain quite a stable value. In the previous version of the definition, the reference to ‘commodity’ was made and questions arose as to how this term should be understood.55 Currently the very broad term of ‘any other value or right’ appears in the definition. As indicated in the new MiCA, Recital 10a the definition of the asset-referenced token in this respect was broadened to ensure ‘that this Regulation is future-proof, and in order to avoid circumvention …’. However, such a broad notion increases the chance that the asset-referenced token will be able to refer to ‘assets’ which do not have stable value. Thus, a similar problem as indicated above may arise. In conclusion, asset-referenced tokens, in practice, may appear to not be as ‘stable’ as they may be presented. Furthermore, it seems that there will be huge differences in the stability of the value of different asset-referenced tokens.
Above, it was indicated what we can find in the asset-referenced token definition. However, the information on what we cannot find in it is also worth noting. In the case of the asset-referenced tokens, their functions are not indicated in the definition (unlike e-money tokens and utility tokens). In other words, asset-referenced tokens can be used as a store of value, but also as a means of exchange56 and/or to provide digital access to a good or service.57 However, to ensure that asset-referenced tokens are mainly used as a means of exchange and not as a store of value, the issuers of asset-referenced tokens and any crypto-asset service providers should not grant interests to the users of asset-referenced tokens for the time such users are holding those asset-referenced tokens.58 As properly indicated in the literature, ‘it is an attempt to ensure [asset-referenced tokens] and [e-money tokens] are payment, rather than securities/investment, tokens: the prohibition seeks to avoid a circumvention of EU securities law given that the promise to pay interest may mix up the criteria for currency and bonds (where only bonds are subject to securities regulation)’.59 Nevertheless, we have to bear in mind that we may still deal with the quite well-recognized problem of so-called ‘hybrid-tokens’, ie such tokens which may fulfil many functions.60 Furthermore, the function of a token may change over time.61
Since such a division cannot be found in the definition, it has only briefly been indicated that MiCA in its further provisions introduces a category of ‘significant’ asset-referenced tokens.62 Quite obviously, regulatory requirements to the former are more far-reaching.63
Electronic money token
The second type of the token defined by the MiCA Regulation is an electronic money token or, in short, e-money token. The electronic money token is:
a type of crypto-asset the main purpose of which is to be used as a means of payment and that purports to maintain a stable value by maintaining a portfolio which ensures that the token maintains the value of a fiat currency that is legal tender; e-money tokens which maintain the value of a fiat currency of the Union shall be deemed to be electronic money as defined in Article 2(2) of Directive 2009/110/EC.64
As concisely indicated in the MiCA Recitals, such crypto-assets, like electronic money, are electronic surrogates for coins and banknotes.65
A closer look at the definition indicates that, as in the case of asset-referenced tokens, such tokens must also fulfil the premises of the very broad MiCA crypto-asset definition to be able to be classified as an e-money token.66 Therefore, again we are dealing with a subcategory of MiCA crypto-assets.
It should be noted that this time, the contemplated definition refers to the ‘purpose’ of the token. It should be used as a means of payment in order to be classified as an e-money token.67 Interestingly, this will be its main purpose. If a token is used for other aims, eg as a store of value,68 that should not deprive the token of its e-money status as long as the main purpose remains the payment.
In the Commission’s version of MiCA (first version) the last part of the definition (purports to…) closely resembled the definition of asset-referenced tokens. However, in the previous version keeping the token value stable was to be achieved by referring to the value of ‘only one’ fiat currency that is legal tender. This was a key distinction since if a certain token referred to two or more fiat currencies, we were dealing with an assets-referenced token, not the e-money. That was to some extent changed in the Amended Version of MiCA. Currently, an e-money token should still maintain the value of ‘only one’ fiat currency.69 However, presently an asset-referenced token, to maintain stable value, can also refer to only one official currency of a country. Thus, the demarcation line has changed. An e-money token shall purport to maintain a stable value by ‘maintaining a portfolio which ensures that the token maintains the value of a fiat currency that is legal tender’. Without considering whether such a change is a step in the right direction, undoubtedly the previous delimitation was much more straightforward. If a token referred to only one fiat currency, we were sure that we are outside the asset referenced token definition. Currently, we have first to examine whether a token ‘refers’ to only one official currency, if the answer is yes, we must verify how exactly the token tries to maintain its stable value, in order to know whether we are dealing with an asset-referenced token or an e-money token.
It should be noted that MiCA does not provide the definition of ‘stablecoin token’,70 which is quite interesting since stablecoins are currently broadly discussed71 and their main function may be seen as payment. Furthermore, it seems that the threat of ‘global stablecoins’, especially Libra coin (currently renamed as ‘Diem’), presented a strong incentive to start or at least accelerate work on MiCA Regulation.72 The question, therefore, may be asked whether stablecoins are the same category as e-money tokens. The lack of a definition of a stablecoin in MiCA causes difficulties in distinguishing these two concepts. However, the stablecoin may be seen as a token which tries to stabilize its price by linking its value to an asset or assets.73 Since both the asset-referenced tokens and the e-money tokens purport to maintain a stable value, we may say that both are certain types of stablecoins.74 In other words, asset-reference tokens and e-money tokens may fall under the broad notion of stablecoins. The important thing is that algorithmic stablecoins shall not be considered as asset referenced tokens or e-money tokens.75 They may be classified as utility tokens or other crypto-assets.76
The EU Commission indicates that e-money tokens ‘whose value is backed by one single currency that is legal tender are close to the definition of e-money under the Electronic Money Directive.’77 As mentioned above, ‘traditional’ electronic money is excluded from the scope of MiCA unless we are dealing with electronic money tokens.78 This is an important exception to the rule that if something is already regulated under the existing EU financial markets legislation, it will not fall under the scope of MiCA. The question arises what provisions apply if we are dealing with an asset which fulfils the premises of electronic money definition and the premises of the e-money token. The answer to such a question is not easy and deserves a separate paper. However, it may be stated that MiCA does not constitute lex specialis which totally derogates the application of regulations regarding electronic money. It seems that the issuers of e-money tokens have to fulfil the requirements comprised in electronic money legislation and MiCA.79 Such a statement seems, to some extent, to be supported by the change of the wording of the e-money token definition. The Amended Version of MiCA adds an additional sentence to the elaborated definition which states that ‘e-money tokens which maintain the value of a fiat currency of the Union shall be deemed to be electronic money as defined in Article 2(2) of Directive 2009/110/EC’.
The above conclusion regarding a possible ‘double-standard’ of such a token does not solve all the problems. The first question to arise is, for example, what happens if there is a conflict between electronic money rules and MiCA? It may be stated that such a problem will be solved in favour of MiCA as it is newer and more specialized legislation. However, some may say that in such a case, more stringent regulation should apply. Still, if MiCA provides a more rigorous approach, the next question would be whether the principle of a technology-neutral approach is respected.80 According to technological neutrality and the ‘same risk, same rule’ principle, financial regulation should not prefer a certain technology.81 Thus, the question arises whether ‘traditional’ technology is preferred over DLT or DLT poses some new risks which require more far-reaching regulation. If the answer is affirmative, the justification is not provided in the MiCA wording or the Explanatory Memorandum. The problem of technological neutrality in the case of e-money tokens occurs also in another context. It seems that, for example, such an activity as providing advice on e-money tokens will become licensable under MiCA. However, such an activity is not licensable in the case of electronic money. Therefore, again, the question may be asked whether the principle of technological neutrality is respected.
Finally, as in the case of asset referenced tokens, MiCA in its further provisions introduces the category of significant e-money tokens.82 Regulatory requirements to the former are more far-reaching.83 In essence, it may be said that significant e-money tokens are simply ‘very large EMTs’.84
Utility token
The last token which was defined by MiCA is the ‘utility token.’ It was defined as:
a type of fungible crypto-asset which is accepted only by the issuer, is used for purposes other than for the payment or exchange of external goods or services, and is intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token.85
It seems that a good current example of such tokens is ‘cryptokitties’.86 They are available on DLT and provide access to your own digital kitties.87
Similarly to the case of the two previously mentioned types of tokens, here we are also dealing with a subcategory of crypto-assets. However, in this case, the token ‘does not have to purport to maintain a stable value’. Thus, we may have utility tokens which will not be classified as ‘stablecoins’. It is significant that the above-mentioned definition does not prohibit a utility token to purport to maintain a stable value. However, if it tries to maintain a stable value in the same manner as asset-referenced tokens or e-money tokens, such a token will be classified as an asset-referenced token or an e-money token, not as a utility token.88
Utility tokens will be created with the aim of providing digital access to a good or service. Nothing more about the purpose or use of such a token was provided in the Commission’s version of MiCA (first version). However, the Amended Version of MiCA added that such a token must be ‘used for purposes other than for the payment or exchange of external goods or services’. Such a change should be assessed positively since it allows for a more precise distinction between utility tokens and other crypto-assets.
Furthermore, a utility token, as indicated in the MiCA Recital, has non-financial purposes related to the operation of a digital platform and digital services and should be considered as a specific type of crypto-asset.89 Importantly the Amended Version of MiCA changed the invoked recital adding that: In somewhat simplified terms, we may say that those changes indicate that as long as a utility token does not have financial use, its issuer and some other entities, are outside the MiCA regulatory burden. However, this conclusion does not exclude such utility tokens entirely from MiCA, since an offeror of crypto-assets or a crypto-asset service provider in reference to such tokens may be within MiCA.92
the issuers of such tokens ‘should be exempt from the application of this Regulation unless offered for investment purposes’;90 and that
‘Specific types of utility tokens, such as those used to ensure access to services, reward schemes to customers, mining reward tokens, and others, should be exempt from regulation even if offered to the public as soon as such an offering is not made for investment or payment purposes’.91
It should be noted that such tokens will be available on DLT. This feature is interesting in the context of a crypto-assets definition which refers to DLT or ‘similar technology’. Therefore, at least literally, a token which is intended to provide digital access to a good or service and is available on similar technology, could not be classified as a utility token, but may be still classified as a crypto-asset. It may be considered whether greater consistency should be provided by MiCA and these two definitions should be aligned. On the other hand, maybe it was a deliberate manoeuvre by the EU legislator, who wanted to provide less rigorous compliance requirements for similar technology tokens and more far-reaching ones for ‘DLT utility tokens’.93 If that was the intention, it was not executed very clearly. There is a lack of a separate title in MiCA regarding only utility tokens and a separate one regarding residual crypto-assets. We can only find Title II, which broadly refers to crypto-assets other than asset-referenced tokens or e-money tokens. In other words and to sum up, the question arises whether this discrepancy was a deliberate action or an oversight.
The last feature of a utility token is to be accepted only by the issuer of that token.94 This premise substantially limits the scope of this token; therefore, it may be said that it is the least significant of the three types of tokens distinguished by MiCA. However, the aim of such a limitation seems to be quite clear, ie to restrict their negotiability.95 Such a limitation allows eliminating or at least mitigating many risks connected with ‘the virtue of DLT as a borderless technology’.96 On the other hand, thanks to such a restriction, the utility tokens shall not pose a threat, for instance, to financial stability;97 thus, they are subject to lower regulatory standards.98 Interestingly, according to the Commission’s version of MiCA, in order to offer such tokens to the public the issuer of utility tokens was not obliged to receive authorization from a competent authority. However, subparagraph (ba) was added to Article 4(1) and it imposes the requirement of authorization from a competent authority.99 Therefore, the Amended Version of MiCA shows that the European Parliament is more afraid of utility tokens than the Commission was.100
Furthermore, we can see that in the Amended Version of MiCA, the word ‘fungible’ was added to the definition of utility tokens.101 This change should be read together with new MiCA Recital 8a which states:
This Regulation should only apply to crypto-assets that are able to be transferred among holders without the issuer’s permission. It should not apply to crypto-assets, that are not fractionable and are accepted only by the issuer, including merchant’s loyalty schemes, that represent IP rights or guarantees, that certify authenticity of a unique physical asset, or that represent any other right not linked to the ones that financial instruments bear, and are not admitted to trading on a crypto-asset exchange.102
In essence, it seems that such amendments aimed at excluding non-fungible tokens (NFTs) from the scope of utility token definition and to large extent from the scope of MiCA.103 Interestingly, in the new MiCA Recital 8b it is indicated that with reference to NFTs it is necessary to consider whether a Union-wide bespoke regime should be proposed by the Commission. Thus, maybe in future we will have a separate directive or regulation which deals comprehensively with NFTs.
Finally, in the case of utility tokens, we do not find a similar division into ‘substantial’ utility tokens and ‘standard’ utility tokens as we have seen in the case of assets-referenced tokens and e-money tokens. This seems to be the consequence of the above-mentioned limited negotiability which probably led MiCA’s drafters to the conclusion that they should not grow to the size of ‘substantiality’ or constitute a threat to financial stability.
Other types of crypto-assets?
The important question that may be asked is whether there are other types of tokens, ie different than those three types distinguished by MiCA. If the answer to the question is affirmative, are they then covered by MiCA?
MiCA does not provide a definition of a ‘token.’ By a token, we may understand ‘any digital representation of an interest, which may be of value, a right to receive a benefit or perform specified functions or may not have a specified purpose or use’.104 If we adopt such a broad notion, it is clear that it is possible to distinguish other types of tokens than the one above elaborated.105 For instance, we may have a token that uses cryptography for security, provides digital access to a good or service, does not purport to maintain a stable value, and is accepted by entities other than its issuer. Thanks to this example, we can see that these three categories are not comprehensive. The question arises whether such a token is inside or outside MiCA. It will be inside the MiCA regime if such a token fulfils the premises of a very broad, above-mentioned generic definition of crypto-assets and does not fall under any of the MiCA exclusions.106 The considerations on the detailed scope of MiCA application in reference to such tokens exceed the scope of this article. However, just for example, it may be indicated that Title II of the MiCA Regulation regulates the offerings to the public and marketing of crypto-assets ‘other than asset-referenced tokens and e-money tokens’.107 Thus, it may be argued, it refers not only to the utility tokens, but also other tokens which may be qualified as crypto-assets. Those residual crypto-assets should not be underestimated. It seems that such a popular crypto-currency as Bitcoin will not fulfil the premises of any MiCA token definitions and will fall under this residual crypto-assets category.108 The follow-up question arises, how will MiCA regulate such crypto-assets as Bitcoins if they do not have an issuer or if issuers are decentralized?109 However, in such a case, at least the so-called secondary activities in reference to such tokens will constitute regulated ones.110 For instance, if a person wanted to provide advice on Bitcoins, s/he would be obliged to obtain an authorization.111 The Amended Version of MiCA explicitly indicates that decentralized issuers are not subject to MiCA until the offering of the crypto-assets to the public is centralized.112
Conclusions
MiCA provides a very broad definition of crypto-assets and definitions of three sub-categories of them, ie asset-referenced tokens, e-money tokens and utility tokens. We are able to distinguish other sub-categories of crypto-assets, which do not fall under any of these three types but fulfil the premises of the crypto-asset definition. Despite the broad definition of crypto-assets, MiCA provides important exclusions from its scope.113 The most significant of these is the exclusion of financial instruments in the meaning of the MiFID II Directive. Generally, we may say that if a certain ‘asset’ is DLT based and has already been subject to the existing EU financial regulations, it will not be covered by MiCA. On the other hand, if we have a crypto-asset or a crypto-asset player which or who is unregulated today, there is a huge chance that it will be regulated when MiCA comes into force.114 Important exceptions to the above conclusions are e-money tokens. If we deal with electronic money in the meaning of the Electronic Money Directive and such e-money qualifies as electronic money tokens under MiCA, MiCA would apply.115
In conclusion, we may say that when MiCA fully comes into force, it will be hard to find crypto-assets which, at least on some level, would not be regulated.116 The majority of crypto-assets currently fall outside the scope of the EU legislation on financial services and the aim of MiCA is simply to change that.117 However, it seems that the precise delimitation between the existing EU legislation and MiCA as well as between different types of tokens under MiCA will steal lawyers’ sleep at nights.118
Footnotes
See AS Kavuri and A Milne, ‘Trading and Regulation of Cryptocurrencies, Stablecoins and Other Cryptoassets’ in KT Liaw (ed.), The Routledge Handbook of FinTech (Routledge, Taylor & Francis Group 2021) 6. Concluding remarks. An overview of crypto-assets development can be found in the Cambridge Centre for Alternative Finance studies available here: <https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/> accessed 28 July 2021.
See for example, C Alcantara and C Dick, ‘Decolonization in a Digital Age: Cryptocurrencies and Indigenous Self-Determination in Canada’ (2017) 19 Canadian Journal of Law & Society/La Revue Canadienne Droit et Société 19; D Bullmann, J Klemm and A Pinna, ‘In Search for Stability in Crypto-Assets: Are Stablecoins the Solution?’ ECB Occasional Paper no 230 (2019). ‘SSRN’ <https://ssrn.com/abstract=3444847> accessed 22 May 2021; UW Chohan, ‘Oversight and Regulation of Cryptocurrencies: BitLicense’ (2018), SSRN <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3133342> accessed 2 May 2021; V Dyntu and O Dykyi, ‘Cryptocurrency in the System of Money Laundering’ (2018) 4(5) Baltic Journal of Economic Studies 75; R Houben and A Snyers, ‘Cryptocurrencies and Blockchain. Legal Context and Implications for Financial Crime, Money Laundering and Tax Evasions’ Brussels (2018); SJ Hughes and ST Middlebrook, ‘Advancing a Framework for Regulating Cryptocurrency Payments Intermediaries Feature’ (2015) 32(2) Yale Journal on Regulation 495; E Noble, ‘Crypto-assets—Overcoming Impediments to Scaling: A View from the EU’ (2020), ‘SSRN’ <https://ssrn.com/abstract=3748343> accessed 20 July 2021; W Srokosz, ‘Law and Innovations on the Financial Market’ in P Mrkyvka and others (eds), The Financial Law Towards Challenges of the XXI Century (Masaryk University Press 2020); W Srokosz, ‘Legalna Definicja Kryptowaluty’ in W Rogowski (ed.), Regulacje Finansowe, FinTech—Nowe Instrumenty Finansowe—Resolution (C.H. Beck 2017); W Srokosz, ‘Supervisory Issues over Blockchain-based Activities’ in L Gąsiorkiewicz and J Monkiewicz (eds), Innovation in Financial Services: Balancing Public and Private Interests (Routledge 2021); T Tomczak, ‘Anti-cryptocurrency Narrative in Public Interest Litigation’ in B Heiderhoff and I Queirolo (eds), Private (International) Law in an Evolving Transboundary Society Selected Issues (Aracne 2020); T Tomczak, Are Cryptocurrencies the New ‘Financial Weapons of Mass Destruction’? (Bank i Kredyt 2019); DA Zetzsche and others, ‘The Markets in Crypto-Assets regulation (MiCA) and the EU digital finance strategy’ (2021) 16(2) Capital Markets Law Journal 203.
See, for example, C Buttigieg and S Cuyle, ‘A Comparative Analysis of EU Homegrown Crypto-asset Regulatory Frameworks’ (2020) 5 European Law Review 639.
See <https://eur-lex.europa.eu/resource.html?uri=cellar:f69f89bb-fe54-11ea-b44f-01aa75ed71a1.0001.02/DOC_1&format=PDF> accessed 20 July 2021. It is worth noticing that MiCA is part of the EU Digital Finance package, the aim of which is to further enable and support the potential of digital finance. See MiCA Explanatory Memorandum, 1. Note that ‘The Digital Finance Package Comprises a New Digital Finance Strategy Combined with a Renewed Retail Payments Strategy’; Zetzsche and others (n 2) 203.
See <https://www.europarl.europa.eu/doceo/document/A-9-2022-0052_EN.pdf> accessed 6 May 2022.
See MiCA Explanatory Memorandum, 4–5 and ESMA, Advice-Initial Coin Offerings and Crypto-Assets, 9 January 2019, ESMA 50-157-1391, 5 <https://www.esma.europa.eu/document/advice-initial-coin-offerings-and-crypto-assets> accessed 1 July 2021.
MiCA Explanatory Memorandum, 2.
Some new recitals have been introduced in the Amended Version of MiCA. The last Recital is still numbered 79; however, in the Amended Version of MiCA we can find additional Recitals such as, for example, (1a), (2a) or (78a).
See <https://eur-lex.europa.eu/resource.html?uri=cellar:f69f89bb-fe54-11ea-b44f-01aa75ed71a1.0001.02/DOC_1&format=PDF> accessed 20 July 2021.
Currently, finding the appropriate scope of MiCA’s application constitutes quite a challenge. See, for example, Kavuri and Milne (n 1) and Zetzsche and others (n 2) 218–21.
It must be indicated that the above definition has been taken from the Amended Version of MiCA. In the Commission’s version of MiCA (first version) the mentioned definition looked as follows: a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology.
ESMA defined crypto-assets as ‘a type of private asset that depends primarily on cryptography and Distributed Ledger Technology (DLT) or similar technology as part of their perceived or inherent value …’. See EMSA (n 6) 42. The above is not very surprising since in the MiCA Explanatory Memorandum, it is expressly stated that the proposal was based on ESMA and EBA advice. See MiCA Explanatory Memorandum, 3.
See ESMA definition of crypto-assets cited above, ESMA (n 6) 16–17 and ESMA, ‘The Distributed Ledger Technology Applied to Securities Markets’ February 2017 <https://www.esma.europa.eu/document/report-distributed-ledger-technology-applied-securities-markets> accessed 27 July 2021.
See MiCA Explanatory Memorandum, 2 and Zetzsche and others (n 2) 209.
See ESMA (n 6) 7. However, see the definition of crypto-assets which can be found in the glossary (ESMA (n 6) 42), where there is also a reference to the ‘similar technology’.
See MiCA Explanatory Memorandum, 2.
In the Commission version of MiCA, distributed ledger technology was defined as a type of technology that supports the distributed recording of encrypted data (see the Commission’s version of MiCA, art 3(1) No 1). In the Amended Version of MiCA the indicated provision has been changed and only refers to the definition of DLT in the DLT Pilot Regime Regulation. However, in the mentioned Regulation the definition is also quite short, vague and very similar to the definition which was previously included in MiCA. It looks as follows: ‘distributed ledger technology’ or ‘DLT’ means a class of technologies which support the distributed recording of encrypted data’. However, it should be noted that in the Amended Version of MiCA recital (1a) was also added which tries to specify how the notion of DLT should be understood. It must be indicated that this is a quite strange legislative approach where there is no definition of notion in the main document (only a reference to another regulation), but recitals try to specify such a term. In ESMA document, DLT was defined as a means of saving information through a distributed ledger, ie a repeated digital copy of data available at multiple locations …. See ESMA (n 6) 8, 42.
More information about the mentioned regulatory burden can be found below, but see especially Zetzsche and others (n 2).
W Srokosz properly notices that regulation of certain financial innovation that is too quick and up-front may ‘kill’ it. See Srokosz (n 2) 644–5.
European Commission, Communication on a Digital Finance Strategy for the EU (Communication) COM (2020) 591 final.
See MiCA Explanatory Memorandum, 1.
Ibid 2.
Many jurisdictions at the beginning did not take a hostile attitude towards crypto-assets, ie the main application of blockchain technologies, since they did not want to hamper innovation, especially one that can easily escape to a different jurisdiction. However, after some time, when crypto-assets began to increase in importance, countries started either to provide bespoke regulatory regime, or ‘fit’ crypto-assets under the existing financial regulations. A good example of the former is the position of the Polish Financial Supervisory Authority, See Urząd Komisji Nadzoru Finansowego, Stanowisko Urzędu Komisji Nadzoru Finansowego w Sprawie Wydania i Obrotu Krypto Aktywami (Position of the Polish Financial Supervision Authority on the Issue and Trading of Crypto-assets) July 2020 <https://www.knf.gov.pl/knf/pl/komponenty/img/Stanowisko_UKNF_ws_wydawania_i_obrotu_kryptoaktywami_70296.pdf> accessed 31 July 2021). The described phenomenon is also noted by Noble (n 2) 2–3.
It is quite obvious that the existing regulations were not drafted with crypto-assets in mind. See ESMA (n 6) 21, 37 and Noble (n 2) 14.
See Zetzsche and others (n 2) 220–1.
More about this new paragraph below.
The definition of crypto-assets in the Commission’s version of MiCA (first version) was even broader since it did not refer to cryptography.
More about this last exception below.
An important exception refers to electronic money. More about this below.
The indicated definition is as follows: ‘electronic money’ means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions as defined in item 5 of art 4 of Dir 2007/64/EC, and which is accepted by a natural or legal person other than the electronic money issuer.
See Section ‘Electronic money token’ of this article.
It is worth noticing that the MiCA Regulation was accompanied by the Commission proposal to clarify the existing definition of ‘financial instruments’ by expressly including financial instruments based on DLT within this definition. See the proposal for a Directive of the European Parliament and of the Council amending Dir 2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and EU/2016/2341—COM(2020)596.
The mentioned list looks as follows: (1) Transferable securities; (2) Money-market instruments; (3) Units in collective investment undertakings; (4) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, emission allowances or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash; (5) Options, futures, swaps, forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event; (6) Options, futures, swaps and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, an MTF or an OTF, except for wholesale energy products traded on an OTF that must be physically settled; (7) Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in point 6 of this section and not being for commercial purposes, which have the characteristics of other derivative financial instruments; (8) Derivative instruments for the transfer of credit risk; (9) Financial contracts for differences; (10) Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climatic variables, freight rates or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of default or other termination event, as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in this section, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market, OTF, or an MTF; (11) Emission allowances consisting of any units recognized for compliance with the requirements of Dir 2003/87/EC (Emissions Trading Scheme).
ESMA (n 6) 5, 39.
Ibid. See also, Zetzsche and others (n 2) 209 and V Burilov, ‘Regulation of Crypto Tokens and Initial Coin Offerings in the EU’ (2019) 6(2) Eur J Comp L Gov 146. The former argues that the first task for EU policymakers, even before MiCA, will be to define precisely the scope of a tokenized financial instrument.
See MiCA Explanatory Memorandum, 4–5.
Therefore, something that MiCA would try to fight against. See MiCA Explanatory Memorandum, 6, MiCA, Recital 4, and Zetzsche and others (n 2) 209. Interestingly quite controversial opinions can be found that MiCA Regulation may lead to regulatory arbitrage (instead of preventing it). See Kavuri and Milne (n 1) ‘Introduction’.
Compare Zetzsche and others (n 2) 218–19 who refer to the lack of precision in the boundaries of the notion of ‘transferable securities’.
It may be indicated that it is often highlighted that ‘“security/financial/investment tokens” are tied to an underlying asset and represent a fractional ownership of the overall value of the asset, albeit not of the asset itself …’. Zetzsche and others (n 2) 208.
See also the changed wording of MiCA, Recitals 6 and 9.
In the Commission’s version of MiCA, Recital 6 stated: ‘Union legislation on financial services should not favour one particular technology. Crypto-assets that qualify as “financial instruments” as defined in article 4(1), point (15), of MiFID II directive should therefore remain regulated under the general existing Union legislation, including Directive 2014/65/EU, regardless of the technology used for their issuance or their transfer’. In the Amended version of MiCA, Recital 6, we can read: ‘Union legislation on financial services should be based on the principle “same business, same risks, same rules” and follow a technologically neutral approach. Crypto-assets that qualify as “financial instruments” as defined in Article 4(1), point (15), of Directive 2014/65/EU or as “deposits” as defined in Article 2 (1), point (3) of Directive 2014/49/EU of the European Parliament and the Council should therefore remain regulated under the general existing Union legislation, including Directive 2014/65/EU and Directive 2014/49/EU respectively, regardless of the technology used for their issuance or their transfer. (...)’ More about the principle of technological neutrality can be found, for example, in the European Commission’s Expert Group on Regulatory Obstacles to Financial Innovation, 30 Recommendations on Regulation, Innovation and Finance, Brussels, December 2019 <https://ec.europa.eu/info/publications/191113-report-expert-group-regulatory-obstacles-financial-innovation_en> accessed 28 July 2021.
Zetzsche and others (n 2) 210.
More information about it can be found in the section ‘Electronic money token’ of this article.
However, see the remarks included in the section ‘Utility token’ of this article regarding NFTs.
ESMA (n 6) 8.
ESMA (n 6) 5. See also regulations of crypto-assets in different states shortly described in Zetzsche and others (n 2) 207–8.
MiCA, art 3(1) no 3. It should be noted that in the Commission’s version of the MiCA (first version) the invoked definition was a little different and looked as follows: a type of crypto-asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets. The current definition is broader and explicitly indicates that if a token is classified as an e-money token, it cannot at the same time be classified as an asset-referenced token. Furthermore, the term ‘fiat currency’ was replaced by the term ‘official currency’. Such a change seems to result from the ECB recommendation. See ECB, Opinion of the European Central Bank of 19 February 2021 on a proposal for a regulation on Markets and Crypto-assets, and amending Dir (EU) 2019/1937 (CON/2021/4), point 2.1.5.
To find out more about tether, see for example <https://tether.to/> accessed 23 July 2021.
See Section 2 of this article.
In the Polish version of MiCA, the words ma utrzymywać can be found; therefore, the question may be asked whether the English and Polish versions of MiCA are coherent. It seems that this question should be answered when the final version of MiCA becomes available.
See the section ‘Electronic money token’ of this article.
More about this definition below.
Especially since MiCA, Recital 9 has not changed the wording in that respect and explicitly indicates that asset-referenced tokens may refer to one or several crypto-assets.
To find out more about their floating value, see Tomczak (n 2) 92–4 or Kavuri and Milne (n 1) ‘An overview of crypto-assets’.
It seems that the broad understanding of it was usually adopted. Compare R Rirsch and S Tomanek, ‘Crypto-assets: Commodities under European Financial Markets Law?’ (2018) 2(3) Journal of Financial Compliance 199. Art 3(25) of MICA states that ‘commidity’ means ‘commodity’ under art 2(6) of Commission Delegated Regulation (EU) 2017/565.
The main function of the e-money token. See the section ‘Electronic money token’ of this article.
The main function of the utility token. See the section ‘Utility token' of this article.
See MiCA, Recital 41, arts 36 and 45.
See Zetzsche and others (n 2) 216; more generally about tokens, including hybrid tokens, in: SV Odintsov, VA Koncheva and MV Trubina, Tokens: Actual Problems of Determining the Legal Status and Classification (Springer 2019).
The problem of hybrid tokens is very complex. It is shortly indicated in Zetzsche and others (n 2) 208.
Ibid.
Criteria to classify an asset-referenced token as a significant one can be found in MiCA, art 39. It should be noted that in the Commission’s version of MiCA (first version) such a classification was to be made by EBA. The Amended Version of MiCA transfers those competences from EBA to ESMA. Compare the previous and current wording of art 39 of MiCA.
See MiCA, art 41 and MiCA, Recitals 41–42.
MiCA, art 3(1) no 4. It should be noted that in the Commission’s version of the MiCA (first version) the invoked definition was to some extent different and looked as follows: ‘a type of crypto-asset the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender’.
MiCA, Recital 9.
See the section ‘Asset-referenced token’ of this article.
It should be noted that the previous definition used the term ‘means of exchange’ not ‘means of payment’.
For example, when someone buys e-money tokens since the value of his local currency is very unstable.
It is worth noticing that in the definition of an asset-referenced token the term ‘fiat currency that is legal tender’ was replaced by ‘official currency of a country’, but the same was not done in the definition of an e-money token. This seems to be a mistake, which will be corrected in future.
However, some references to stablecoins can be found in MiCA. See, for example, MiCA, Recital 26.
To find out more about stablecoins, see, for instance: G7 Working Group on Stablecoins, Report on ‘Investigating the Impact of Global Stablecoins’ October 2019 <https://www.bis.org/cpmi/publ/d187.pdf> accessed 28 July 2021.
MiCA Explanatory Memorandum, 2–3. To find out more about Facebook’s proposal for the Libra as an incentive for MiCA, see Zetzsche and others (n 2) 203–4, 208, 224. More general information about Libra can be found, for example, in: D Awrey, ‘Bad Money’ (2020) 106(1) Cornell Law Review, SSRN <https://ssrn.com/abstract=3532681>, 44–5.
Compare: G7 Working Group on Stablecoins (n 71) ii, where we can read that: ‘Stablecoins have many of the features of cryptoassets but seek to stabilise the price of the “coin” by linking its value to that of a pool of assets.’ We can see that such a definition excludes the situation in which the stablecoin refers only to one asset.
A similar view can be found in MiCA Explanatory Memorandum, 10 and Noble (n 2) 16, and Zetzsche and others (n 2) 209.
Algorithmic stablecoins are those which aim to maintain a stable value via protocols that provide for the increase or decrease of the supply of such crypto-assets in response to changes in demand. See MiCA, Recital 26.
More likely as other crypto-assets. Similarly, Zetzsche and others (n 2) 212–13.
See MiCA Explanatory Memorandum, 8. The cited sentence refers to stablecoins not e-money tokens. The relation between the stablecoin definition and the e-money token definition was explained above.
See Section 2 of this article.
Such a conclusion may be supported by the wording of MiCA, Recitals 10 and 44–45. Notably, in Recital 44, we can read that: ‘Issuers of e-money tokens … should comply with the relevant operational requirements of Directive 2009/110/EC, unless specified otherwise in this Regulation.’
The importance of a technology neutral approach is underlined, inter alia, by the ESMA. See ESMA (n 6) 4.
See Noble (n 2) 2, Zetzsche and others (n 2) 205 and MiCA, Recital 6.
MiCA, art 50, states that EBA, after consulting the ECB and the relevant central banks of Member States whose currency is not the euro, will classify e-money tokens as significant on the basis of the criteria listed in MiCA, art 39, ie the same criteria as in the case of asset-referenced tokens.
See, for example, MiCA, art 52, which contains the additional obligations applicable to issuers of significant e-money tokens, and MiCA, Recitals 41 and 49.
Zetzsche and others (n 2) 209.
MiCA, art 3(1) no 5. It should be noted that in the Commission’s version of the MiCA (first version) the invoked definition was to some extent different and looked as follows: a type of crypto-asset which is intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token’.
See Kavuri and Milne (n 1) ‘Definitions’.
For more information about cryptokitties, see <https://www.cryptokitties.co/> accessed 28 July 2021.
See the hierarchy provided in: Zetzsche and others (n 2) 209.
See MiCA, Recital 9.
Ibid.
Ibid.
See new MiCA art 2(1b) which states that ‘If an offeror of crypto-assets or a crypto-asset service provider offers to the public crypto-assets other than asset-referenced tokens or e-money tokens, or requests that such crypto-assets be authorised for trading on a trading platform for crypto-assets, the offeror or crypto-asset service provider shall comply with the requirements of this Regulation concerning issuers of such crypto-assets’.
See, for example, MiCA, art 4(3), which refers only to the utility tokens and not more generally to ‘crypto-assets, other than asset-referenced tokens or e-money tokens’, as Title II states.
Which is highlighted twice in the current definition. It seems that this is a mistake which will be corrected in future.
Zetzsche and others (n 2) 219.
Noble (n 2) 9.
Currently, the crypto-assets are not seen as a threat to financial stability; however, ‘this may change with the advent of “global stablecoins”’. See MiCA Explanatory Memorandum, 2 and MiCA, Recitals 4 and 42. The justification for more stringent requirements in reference to ‘stablecoins’ can be found, for example, in MiCA Explanatory Memorandum, 5.
Compare MiCA title II (arts 4–14) which refer to crypto-assets other than asset-referenced tokens or e-money tokens with titles III (arts 15–42) and IV (arts 43–52) which refer, accordingly, to asset-referenced tokens and e-money tokens.
See, however, MiCA art 4(2). Quite concisely in reference to regulatory differences, however, in reference to the Commission’s version of MiCA (first version), see Zetzsche and others (n 2) 210–16.
Compare, for example, the previous wording of art 4(1) of MiCA with the current one.
‘a type of fungible crypto-asset ….’ See MiCA, art 3(1) no 5.
Further in the quoted recital we can read: ‘The fractional parts of a unique and non-fungible crypto-asset should not be considered unique and non-fungible. The sole attribution of a unique identifier to a crypto-asset is not sufficient to classify it as unique or non-fungible. Similarly, this Regulation should also not apply to crypto-assets representing services, digital or physical assets that are unique, indivisible and non-fungible, such as product guarantees, personalised products or services, or real estate. However, this Regulation should apply to non-fungible tokens that grant to its holders or its issuers specific rights linked to those of financial instruments, such as profit rights or other entitlements. In those cases, the tokens should be assessed and treated as security tokens, and be subject, together with the issuer, to various other requirements of Union financial services law …’.
NFTs currently constitute a highly debated topic in both in practice and doctrine. This issue exceeds the scope of this article. For more about NFTs see for example: Q Wang, QLiR Wang and S Chen, ‘Non-fungible Token (NFT): Overview, Evaluation, Opportunities and Challenges’ (2021) arXiv preprint arXiv: 2105.07447.
See ESMA (n 6) 42. The notion of tokenization has been defined by ESMA more narrowly as the representation of traditional assets on DLT. See ESMA (n 6), 4, 18.
E Noble distinguishes a category, named ‘other’, which includes ‘not asset-referenced, e-money or utility tokens and not otherwise excluded from the scope of the regulation.’ See Noble (n 2) 16. As was already indicated above, it seems that NFTs are also to some extent excluded from the scope of MiCA. See MiCA, Recital 8a–8b.
See MiCA, art 2 and Noble (n 2) 14–15.
See Zetzsche and others (n 2) 209.
Ibid 212–13.
Whether such crypto-assets as Bitcoins have an issuer constitutes a very complex issue which exceeds the scope of this article. However, it is worth indicating that the Amended Version of MiCA has got a new subparagraph (1a) in art 3(1) which defines ‘a decentralised autonomous organisation’.
See MiCA, Title V which refers to authorization and operating conditions for Crypto-Asset Service providers.
See MiCA, art 53.
See MiCA, Recital 11 and modified version of Recital 13.
See MiCA, art 2.
Currently, art 126 indicates that MiCA will enter into application 18 months after its entry into force, except for the provisions related to e-money tokens and asset-referenced tokens that shall enter into application on the date of entry into force of MiCA. See also MiCA Explanatory Memorandum, 14.
See MiCA, Article 2(2)(b).
In the Commission’s version of MiCA, Recital 8 stated that ‘<Crypto-assets> … should … be defined as widely as possible to capture all types of crypto-assets which currently fall outside the scope of Union legislation on financial services.’ In the Amended Version of MiCA after ‘all types of crypto-assets’ has been added a phrase: ‘which have or might have a financial use, can be transferred between holders’. The second part of the sentence remained unchanged (‘which currently fall ...’).
See MiCA, Recital 3 and Noble (n 2), p. 15.
Article 3(2) of the Commission’s version of MiCA empowered the European Commission to adopt delegated acts in accordance with MiCA, Article 121, to specify technical elements of the definitions laid down in Article 3(1), and to adjust those definitions to market developments and technological developments. To find out more about this issue, see DA Zetzsche and others (n 2), p 220–1. However, as was indicated, art 3(2) was deleted and, to some extent, ‘replaced’ by new MiCA, Article 2(2a). See Section 2 of this article.
Author notes
PhD–, Tomasz Tomczak, University of Opole, Faculty of Law and Administration, Department of Commercial and Financial Law, Poland.
