Mica Regulation – Token Types & Token Issuance

MiCA, launched this year, requires companies issuing tokens in the EU to obtain certification before proceeding. I will publish a series of articles to help you better understand MiCA and its implications.

Today I will discuss token types and how the new $TRUMP and $MELANIA memcoins fall into the regulations.

What Are the Objectives of the Regulation?

Regulation (EU) 2023/1114 establishes uniform rules for issuers of crypto-assets that were previously not subject to EU financial services regulations and for entities providing services related to such crypto-assets (crypto-asset service providers).

These rules include:

Requirements for transparency and disclosure related to the issuance, public offering, and admission of crypto-assets to trading platforms.

2. Licensing requirements for crypto-asset service providers and issuers of asset-referenced tokens and e-money tokens, along with their supervision.

3. Operational, organizational, and governance obligations for issuers and service providers.

4. Protection of crypto-asset holders and clients of service providers.

5. Measures to prevent insider trading, unlawful disclosure of insider information, and market manipulation.

Key Points:

The regulation applies to the issuance, public offering, trading, and services related to crypto-assets.

Types of Crypto-Assets under the regulation:

E-money tokens (e-money): Crypto assets that stabilize their value relative to a single official currency.

2. Asset-referenced tokens: Crypto assets that stabilize their value relative to other assets or a basket of assets.

3. Other crypto-assets: Crypto-assets are not classified as e-money or asset-referenced tokens.

Requirements for Issuers of Non-Asset-Referenced or E-Money Tokens:

Must have legal personality.
Publish crypto-asset whitepapers and marketing materials on their website.
Operate honestly, fairly, and professionally.
Communicate clearly and transparently with current and potential buyers.
Detect, disclose, and manage potential conflicts of interest.
Be liable for damages resulting from false information in the whitepaper.
Grant holders a right of withdrawal.

Requirements for Issuers of Asset-Referenced Tokens:

Must be a legal entity based in the EU.
Obtain authorization from an EU Member State or operate as a credit institution.
Redeem tokens on demand at market value or deliver the underlying assets.
Maintain liability for any misinformation in published documents.
Operate transparently and fairly while treating all token holders equally.
Set up effective complaints procedures.
Maintain reserve assets covering obligations and minimum own funds of €350,000, 2% of average reserves, or 25% of fixed overheads from the previous year.
Develop recovery and redemption plans for financial difficulties

Requirements for Issuers of E-Money Tokens:

Must be licensed as a credit or electronic money institution.
Publish accurate whitepapers and marketing materials.
Issue tokens at nominal value upon receiving funds.
Redeem tokens on demand at nominal value.
Invest received funds in low-risk assets in the same currency, stored in separate accounts.
Develop recovery and redemption plans for financial difficulties.

E-Money Tokens (EMTs) examples:

USDC (USD Coin): A stablecoin pegged 1:1 to the US Dollar. Its value remains stable as it is backed by reserves held in USD or equivalent.

Tether (USDT): Another stablecoin that aims to maintain parity with the US Dollar.

Asset-Referenced Tokens examples:

Diem (formerly Libra): Meta’s (Facebook) now-defunct project was intended to be backed by a basket of currencies and assets, aiming to reduce volatility and ensure stability.

sXAU (Synth XAU): A synthetic asset by Synthetix, representing the price of gold.

Other Crypto-Assets examples:

Bitcoin (BTC): The first cryptocurrency, primarily used as a store of value or speculative asset, without value stabilization mechanisms.

Ethereum (ETH): A cryptocurrency supporting a decentralized computing platform.

Dogecoin (DOGE): A meme coin created as a joke, lacking intrinsic value or stabilization mechanisms.

Trump and Melania’s $TRUMP and $MELANIA: Meme coins recently launched without any backing or stabilization features, making them purely speculative assets.

Memecoins

Recently, Donald Trump and Melania Trump introduced their own meme coins, $TRUMP and $MELANIA, respectively.

Given their nature as meme coins without inherent value stabilization mechanisms, these tokens would likely be classified under MiCA as Other Crypto-Assets.

Compliance Requirements Under MiCA for OCAs:

Legal Entity: Issuers must operate as a legal entity within the EU.
Whitepaper Publication: A detailed crypto-asset whitepaper must be drafted, containing essential information about the project, and submitted to the relevant regulatory authority.
Consumer Protection: Issuers are obligated to act honestly, fairly, and professionally, ensuring transparent communication with potential buyers.
Market Integrity: Measures must be in place to prevent insider trading and market manipulation.

Implications for $TRUMP and $MELANIA Tokens:

If these tokens are offered within the EU, the issuers would need to comply with MiCA regulations applicable to OCAs. This includes establishing a legal entity within the EU, publishing a compliant whitepaper, and adhering to consumer protection and market integrity standards. Failure to meet these requirements could result in regulatory actions, including fines or restrictions on offering the tokens within the EU market.

It’s important to note that MiCA aims to provide a harmonized regulatory environment across the EU, ensuring that all crypto-assets, including meme coins like $TRUMP and $MELANIA, operate under clear guidelines to protect consumers and maintain market stability.

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