MiCA Token Issuance – The Complete Guide

MiCA classification of crypto-assets

Any potential token issuer must first acknowledge the three-tiered asset classification laid out in the MiCA Regulation. There are three categories constituting the MiCA framework, and the crypto-assets that do not account for in the framework.

• Electronic Money Tokens (EMT), whose value derives from a single official currency;
• Asset-Referenced Tokens (ART), whose value derives from a basket of assets, commodities and/or currencies;
• Other crypto assets, gathering all those who don’t fall under the first two classes, but still require regulation.

Every crypto asset issued in Europe under MiCA now requires first to be greenlighted with the drafting and review of a whitepaper. The white paper of the token has to be professionally prepared before being sent as a notification to the National Competent Authority (NCA) of the Member State where the token will be issued.

The specific requirements pertaining to the white paper depends on the asset classification, meaning that even before that, a token issuer has to be certain of the crypto-asset class its token falls into.

Let’s explore each type of crypto-assets, including those who may not fit into the MiCA framework.

Electronic Money Tokens (EMT)

EMTs are often compared to stablecoins, as the single referenced asset behind an EMT’s value is more often than not a fiat currency, such as the euro or US dollar.

Electronic Money Tokens are the most strongly regulated crypto-assets within MiCA and have the highest requirements in terms of corporate structure, financing and compliance legal work.

• The issuer is authorized as an Electronic Money Institution or credit institution within the EU, as per Article 48.1.(a);
• A complete whitepaper, compliant with Article 51 and Annex III of the Regulation;
• Notification of the NCA at least 40 days before issuance (Article 48.6);
• Issue the EMT at par value and on the receipt of funds (Article 49.3).

You read it right: to issue an Electronic Money Token, you need an electronic money license in the European Union. This alone propels any EMT project’s budget way above a six figures cost, as a matter of fact.

Asset-Referenced Tokens (ART)

ARTs are a wider category than EMT, but their concrete use cases are less common and there were no ARTs registered in the whole of Europe after the first quarter of enforcement of the MiCA regulation. An Asset-Referenced Token derives its value from various assets, and/or from two or more fiat currencies.

Issuing an ART doesn’t require any financial license, at the different of the above described EMT. What matters most to the MiCA lawmakers is solvency: an ART issuer should therefore hold, at all time, a very minimum of 350,000 EUR, and an amount that shall be revised frequently of the basis of three different calculations. Reserve assets should be held in sufficient amounts and in segregated accounts. The whole structure is subject to audits from the National Competent Authority of the European jurisdiction where the token is being issued.

There are also obligations applying to ART issuers under MiCA, as they are required to report every quarter on the number of holders, their value, and the data pertaining to transactions.

Regarding the mandatory white paper, MiCA’s Annex II is the reference text on what is required within the document.

Other crypto-assets

Though usually listed as the third categories of crypto-assets under the MiCA regulation, the “others” category encompasses the large majority of tokens. It’s fair to say that EMTs and ARTs are categorization aimed at regulating stablecoins in Europe. Most crypto-assets do not fall under this classification.

Now the requirements are significantly more reasonable, in comparison to the other two, which had strict authorization and solvency obligations. But there is still the legal obligation to prepare a legally compliant white paper and to respect the token issuance framework described in the regulations.

A note regarding NFTs: they may only be excluded from this categorization if they are genuinely non-fungible. This means unique pieces whose value doesn’t derive from another asset. Such NFTs are then theoretically outside the scope of MiCA. This can change and we advise the highest cautiousness in any case.

The Annex I of the MiCA regulation describes the elements that should figure in the white paper of an “other” crypto-asset issued in the European Union under the new regulation.

Exceptions (NFTs, algorithmic tokens, etc)

The MiCA regulation is still young and subject to changes. As the cryptocurrency industry constantly innovates and changes, the reality of today differs from the reality of tomorrow, both on the regulatory and technical sides.

As stated above, NFTs are excluded from the frame of the MiCA regulation if they have no element of fungibility (subjective assessment that thousands of NFTs are identical or almost, with rarity traits, for example) and aren’t backed by any other asset of any kind.

In the case of crypto-assets, whose value derive from one or more other assets, who may be generating revenue to holders, who may have an algorithmic component: as we’ve seen with Ethena Labs, MiCA authorities may purely refuse the token and ban it from Europe. There is little to no room for outliers of the categorization and conditions laid out by the MiCA regulation for crypto-assets.

In some cases, crypto-assets may also be exempt from the obligation to publish a white paper:

• Offered to less than 150 people per EU member state;
• The total offering is under 1 million EUR over 12 months;
• Crypto-assets being offered for free;
• Crypto-assets being rewarded as mining or validation incentives;
• Utility tokens for already existing services.

Note that even if a token answers to one or more of these criteria, from the moment it is listed on a trading platform, the requirement for a white paper applies.

How does MiCA regulate token issuance in Europe

As we saw in the part about crypto asset classification, MiCA formulated different applicable frameworks, depending on the crypto asset class.

This part covers the regulatory elements that are applicable to every token issued in EU member states, to comply with MiCAR.

European legal entity

Any token issuer is required to form a legal structure in a European Member State. In certain cases, it is required to register the legal structure in the jurisdiction where the token will be supervised by a National Competent Authority (NCA).

The legal entity itself may be the object of supervision by the relevant NCA, which can further push the requirement to register a legal entity (and actual place of business) in the same country.

General obligations on the white paper

A white paper for any token issued under the MiCA regulation should be fair, clear and not misleading. It must be public and easily accessible from the website of the issuer.

The white paper should also be congruent with any marketing material and communication of the issuer. The latter must not mislead consumers. The NCAs have the authority to intervene in such cases.

In a similar fashion, if the white paper wrongly states on the crypto-asset classification, the NCAs are entitley to suspend or ban the offering, and to impose fines or to initial legal actions against the issuer.

In case the issuer launches its own blockchain for issuing a coin (and tokens), the consensus mechanism (Proof of Work, Proof of State, etc) must be disclosed.

Protection of retail investors

Risk assessment and warnings pertaining to investing into the token must be displayed on both the white paper and the token sale interface.

For crypto-assets that aren’t traded, the buyer should benefit from a 14-days period of withdrawal right. This only apply to natural, non-professional persons.

The step-by-step process of token issuance in the MiCA regulation

A proper token issuance, compliant with the MiCA regulation, requires due preparation. There are a few bases to touch before being able to proceed with the token offer, no matter the class of the crypto-assets you intend to emit.

Below is a simplified, comprehensive guide of the steps leading to a proper token issuance in a MiCA-regulated jurisdiction.

1. Assess the token class

The first step, at the very least to comply with the requirements laid out in the first part of this article. On top of this section, you can find obligations pertaining to each crypto-asset class.

Though the classification is clear, it is always recommended to have an opinion from a law practitioner. LegalBison’s in-house lawyers can help at this stage to ensure your project starts off from the right foot.

2. Set-up a legal entity in the EU

If you aren’t based in a EU member state or do not have a company registered yet, the formation of a company in the EU will be necessary at this stage.

It is strongly advise to locate the company in the jurisdiction where you plan to have the token supervised.

3. Draft the white paper

As explained in the section pertaining to asset classes, any token issued from an EU member state, therefore subject to the MiCA regulation, must prepare a compliant white paper.

• MiCA Annex I describes the requirement for other crypto-assets;;
• MiCA Annex II describes the requirement for ARTs;
• MiCA Annex III describes the requirement for EMTs.

4. Notify the National Competent Authority

Once the white paper is ready and ideally audited by third parties, or drafted altogether by a competent legal and compliance services provider such as LegalBison, it must be notified to the jurisidiction’s National Competent Authority.

For ARTs and EMTs, validation by the NCA is mandatory before proceeding further.

5. Ensure marketing compliance

Public communication and marketing material pertaining to the crypto-asset to be issued is also under supervision of the National Competent Authority.

The promotion of the token should be fair, clear and not misleading. There shouldn’t be discrepancies with the white paper.

6. Establish fund and asset safeguard

ART and EMT issuers must comply with the reserve asset holding rules that apply. These exact rules differ on each specific case, with certain variables. The exact safeguarding requirements can be assessed during the first stage of the process, with our assistance.

In the case of a fundraising, a custodian or third party service should be appointed to hold raised funds.

In the eventuality of an offer cancellation, a clear refund mechanism should be established and be made public.

7. Launch the token offering

Once all the 6 steps above are fulfilled, you are good to go! You can proceed with the token offering, in compliance with MiCA.

8. Maintain ongoing compliance

The issuance isn’t the end of the issuer’s obligations. A quarterly report is required, which in the case of ARTs and EMTs can recalculate the need for reserve assets and solvency funds.

The issuer should also keep the white paper up to date and notify publicly on any events impacting the value or the risk of the asset.

And naturally, the issuer must comply and cooperate at all time with the National Competent Authority.