MiCA strengthens investor rights and market stability but creates barriers for innovation-based DeFi projects
The European Commission recently proposed new cryptocurrency regulations to provide more legal clarity and certainty for the cryptocurrency industry and its member states. However, industry regulatory adviser XReg Consulting has raised concerns about the regulations.
The proposed markets in Crypto Assets or the MiCA regulations are aimed at strengthening consumer and investor protection by codifying certain obligations on the crypto asset issuer, the European Commission said. Xreg released a report outlining the contents and implications of MiCA.
“MiCA will affect everyone & everything in crypto, especially DeFi and stablecoin,” Xreg explained.
The regulations stipulate that crypto-asset issuers must be incorporated as a legal entity in order to continue operating crypto services in the EU. Xreg argued that this requirement could pose significant challenges to the DeFi industry as DeFi tokens’ issuers are “at times unidentifiable”.
“The obligation that crypto-asset issuers must be incorporated in the form of a legal entity could pose significant challenges for DeFi projects where issuance is decentralized and there is no identifiable issuer,” the October 5 report stated.
MiCA was the first instance of the European Commission proposing new legislation on crypto assets. The regulation paid special attention to stable coins and was aimed at introducing more stringent requirements for stable coin issuers in terms of capital, investor rights, and supervision, the text of the proposal reads. The regulation further obliged crypto asset issuers to publish a white paper with mandatory disclosure requirements.
Xreg noted that though MiCA promotes investor protection, market integrity and financial stability, it may lead the DeFi industry to see “significant and irreconcilable regulatory challenges and possible existential questions, at least in Europe”.
The report commented that it remains to be seen how MiCA will co-exist with innovative decentralized projects. This “may prove difficult to subject to regulatory requirements,” it added.
XReg Consulting is not alone in noting concerns over MiCa’s potential negative impact on the DeFi industry.
The International Association for Trusted Blockchain Applications (INATBA) has also raised concerns. The consortium of major global crypto companies like Ripple, ConsenSys and Iota, in an official response, warned that under the proposed regulation, some early-stage markets like DeFi “would likely no longer be accessible to Europe and her citizens”.
Written by Harshini Nag