Classification of crypto-assets under MiCA
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, including a careful assessment of the underlying technology of the token.
Let’s explore each type of crypto-assets, including those who may not fit into the MiCA framework, such as non fungible tokens (NFTs), which are generally excluded unless they possess characteristics similar to financial instruments or utility tokens.
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);
- Issuers must maintain sufficient reserves to ensure full liquid asset backing, stability of the issued tokens, and ongoing compliance with MiCA requirements.
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.
Authorization and ongoing oversight are handled by a supervisory authority, such as the European Banking Authority, which is responsible for reviewing and approving EMT issuers’ compliance with MiCA regulations.
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. ART issuers must meet ongoing regulatory requirements under MiCA, ensuring compliance with transparency, reporting, and solvency standards.
Regarding the mandatory white paper, MiCA’s Annex II is the reference text on what is required within the document. As part of regulatory compliance, ART issuers must also disclose associated risks to investors, providing clear information about potential risks related to the tokens and underlying technology.
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. MiCA clarifies existing rules for these assets, providing a clearer legal framework for issuers and service providers.
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. However, some assets, such as those related to decentralized finance (DeFi), may not fit neatly into MiCA’s categories and are not yet fully covered by the regulation. 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.
It is important to 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. Additionally, for certain token offerings, funds regulation such as the Transfer of Funds Regulation (TFR) may still apply, mandating transparency, data exchange protocols, and anti-money laundering measures for crypto transactions.
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