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Welcome back to our deep dive series exploring the diverse landscape of the Markets in Crypto-Assets Regulation (MiCA). Previously, we delved into the complexities of Asset-Referenced Tokens (ARTs), their classifications, and the unique responsibilities issuers bear under MiCA. If you haven't had the chance to read those articles yet, we recommend starting with them to fully understand the context (Part 1, Part 2, Part 3, and Part 4). Today, we focus on another exciting facet of MiCA – E-money Tokens (EMTs). These instruments are transforming the digital financial landscape by leveraging the potential of blockchain technology while maintaining regulatory compliance. This article aims to demystify the regulations around EMTs and provide a comprehensive understanding of what it entails to issue and manage these digital tokens under MiCA. Whether you're an issuer looking to delve into this dynamic world or a curious observer eager to grasp the nuances of digital finance regulations, you're in the right place. Let's dive in. Requirements for the Offer to the Public or Admission to Trading of E-money Tokens (Article 48) The entity making the offer or seeking to trade an EMT in the EU must be the issuer of this EMT. In addition, the issuer: Must be authorized as a credit institution or an electronic money institution. Has to prepare a crypto-asset white paper, notify the competent authority of it, and make it public (below in detail). If the issuer provides written consent, other entities can also offer or seek to trade its EMT. These entities must comply with Articles 50 (Prohibition of granting interest) and 53 (Marketing communications) of MiCA. For regulatory purposes, EMTs are treated as electronic money. If an EMT references an official currency of an EU Member State, it is considered as being offered to the public in the Union. If an issuer intends to offer EMTs to the public or seek their admission to trading, they must notify their competent authority of their intentions 40 working days before the planned date. Even if exempted under the particular circumstances (below in detail), issuers must prepare a crypto-asset white paper and notify the competent authority. Deep Dive: E-Money Directive Exemptions Let's look at the exemption stipulated under Article 9(1) of Directive 2009/110/EC and how it interacts with MiCA's requirements to EMTs. Article 9(1) of the E-Money Directive gives Member States the discretion to relax certain requirements for institutions dealing with electronic money under specific circumstances: The total business activities of the institution must generate an average outstanding electronic money amount that doesn't exceed a limit set by the Member State, but in no case should it surpass EUR 5,000,000. None of the natural persons responsible for managing or operating the business have been convicted of offenses related to money laundering, terrorist financing, or other financial crimes. What does this mean in the context of MiCA? MiCA Article 48(1) sets forth the requirements (mentioned above here) for any person or entity intending to offer E-money tokens (EMTs) to the public or seeking admission to trading in the EU. However, issuers of EMTs who fall under the exemption as per Article 9(1) of the E-Money Directive are not required to comply with those MiCA's requirements in Article 48. In simple terms, if an issuer qualifies for the exemption under the E-Money Directive, such issuers do not need to be authorized as a credit institution or electronic money institution, nor are they required to notify and publish a crypto-asset white paper to offer or trade EMTs. Application of The Electronic Money Directive to EMTs: A Closer Look MiCA's regulations concerning EMTs do not apply to EMTs exempt under Articles 1(4) and (5) of the Electronic Money Directive. Let's examine these exemptions: Article 1(4) of the Electronic Money Directive states that the Directive does not apply to the monetary value stored on exempted instruments that can be used to acquire goods or services either within a limited network of service providers or for a limited range of goods or services. This typically includes store gift cards or loyalty points redeemable only within the issuer's network. Article 1(5) of the Electronic Money Directive specifies that it does not apply to the monetary value used for payment transactions made through telecommunication, digital, or IT devices, where the purchased goods or services are delivered to and used through the same type of device. However, this exemption is valid only when the telecommunication, digital, or IT operator does not act only as an intermediary between the payment service user and the goods or services supplier. So, if EMTs fall under these exemptions, they're not bound by most of MiCA's regulations regarding ETMs. However, there are two exceptions to this: Paragraph 7 of Article 48 and Article 51, which discuss the content and form of the crypto-asset white paper for e-money tokens, still apply to these EMTs. Issuance and Redeemability of E-money Tokens Article 49 of MiCA centers around the issuance and redeemability of e-money tokens (EMTs). It presents certain regulations that deviate from the stipulations in Article 11 of the Electronic Money Directive (Directive 2009/110/EC) exclusively for the issuance and redeemability of EMTs: Claim Rights: EMT holders are granted a claim right against the issuers of those EMTs. Issuance At Par Value: Issuers of EMTs must issue these tokens at par value upon receiving funds. Par value, in this context, means that the face value of the EMT must equal the amount paid to acquire it. Redeemability At Par Value: The issuer must redeem EMTs at any time and at par value upon the holder's request. Redemption refers to exchanging your EMTs for traditional funds, other than electronic money. Redemption Conditions: The conditions for redemption must be prominently mentioned in the crypto-asset white paper. This makes the redemption process transparent to EMT holders, ensuring they are fully informed about the terms of redeeming their EMTs. No Redemption Fee: Lastly, redeeming EMTs must not be subject to any fee. No Interest on E-money Tokens Looking closely at Article 50 of the Markets in Crypto-Assets (MiCA) regulation, we can better understand the rules relating to granting interest on e-money tokens (EMTs). In contrast to Article 12 of the Electronic Money Directive (Directive 2009/110/EC), this article stipulates specific prohibitions for EMT issuers and crypto-asset service providers. No Interest from EMT Issuers: In the first place, issuers of EMTs are expressly forbidden from granting interest related to EMTs. No Interest from Crypto-Asset Service Providers: Similarly, crypto-asset service providers, the entities that offer services related to crypto-assets, including EMTs, are also barred from offering interest when providing these services. Definition of Interest: For clarity, Article 50 goes a step further to define what would be considered as 'interest'. Under this provision, any remuneration or benefit related to the length of time a holder keeps an EMT is classified as interest. This could include net compensation or discounts that have an effect equivalent to that of interest. It could come directly from the issuer or third parties and might be directly associated with the EMT or from the remuneration or pricing of other products. The Crypto-Asset White Paper for E-Money Tokens Article 51 of MiCA regulation highlights the content and structure a crypto-asset white paper for e-money tokens (EMTs) must follow. This document is crucial as it provides potential holders with information about the EMT, the issuer, and the technology behind it. The details required in the white paper include: Information about the issuer: The issuer's details and its background should be clearly mentioned. About the EMT: Information regarding the EMT should be provided, including its functionalities and mechanisms. Public offer details: Clear and comprehensive data about the EMT's public offer and potential trading should be present. Rights and obligations: The white paper should detail the rights and obligations of holding the EMT. Underlying technology: It should also explain the technology supporting the EMT. Risk factors: Details about potential risks associated with the EMT should be given. Environmental impacts: The white paper should identify any significant adverse environmental impacts related to the consensus mechanism to issue the EMT. The paper also must identify any other party offering the EMT to the public or seeking its trading, along with the reason for their involvement. Fairness and clarity are essential in the white paper. All information must be truthful, clear, and not misleading. There should be no material omissions, and the information should be presented concisely. A prominent statement must appear on the first page, stating that any competent authority in the EU hasn't approved the paper and that the issuer is solely responsible for its content. In addition, the document should contain explicit warnings that the EMT isn't covered by investor compensation schemes or deposit guarantee schemes under EU directives. The white paper should also include a statement from the issuer's management body confirming that the document complies with MiCA and that, to their best knowledge, the information presented is complete, fair, and not misleading. A summary written in non-technical language, providing key information about the public offer or trading of the EMT, should be inserted after the management statement. This summary should be understandable, comprehensive, and laid out clearly, with a warning that decisions to purchase should be based on the entire white paper. A table of contents, date of its notification, and details about redemption conditions should also be included in the white paper. The document should be prepared in the official language of the home Member State or a language customary in the sphere of international finance. If the EMT is also offered in another Member State, the white paper must be prepared in that state's official or financial language. The white paper must be available in a machine-readable format, and the European Securities and Markets Authority (ESMA), in cooperation with the European Banking Authority (EBA), is tasked with developing standard forms and formats. Before the public offer or seeking admission to trading, the issuer should publish the white paper on its website and notify its competent authority at least 20 working days before its publication. It's important to remember that any significant new information or changes capable of affecting the assessment of the EMT should be reflected in a modified white paper, which should be notified to the authorities and published on the issuer's website. Liability of Issuers of E-Money Tokens Article 52 of the MiCA regulation addresses the responsibility and potential liability of issuers of e-money tokens (EMTs) concerning the information provided in a crypto-asset white paper. Here's a simplified breakdown: Issuer Liability: If an EMT issuer violates Article 51, by providing incomplete, unfair, unclear, or misleading information in the crypto-asset white paper or a modified version, both the issuer and the members of its administrative, management, or supervisory body are accountable to the EMT holder for any loss arising from this violation. Limitations on Liability: Any contractual conditions that seek to exclude or limit this civil liability won't have any legal effect. It implies that an issuer cannot limit or avoid their liability for the information provided in the white paper through any contractual agreements with the token holders. Evidence: The burden of proof is on the EMT holder. They need to provide evidence indicating that the issuer violated Article 51 by giving incomplete, unfair, unclear, or misleading information and that the holder's decision to buy, sell, or exchange the EMT was influenced by this information. Summary Information Liability: The issuer and its officials are not liable for losses suffered due to reliance on the information provided in a summary, including any translations, unless the summary is misleading, inaccurate, or inconsistent when read along with the other parts of the white paper or does not provide key information to assist prospective holders when deciding whether to buy the EMT. National Law: This article does not affect any other civil liability applicable under national law. Marketing Communications for E-Money Tokens Article 53 of the MiCA regulation presents rules regarding marketing communications related to e-money tokens (EMTs). It ensures clarity, fairness, and consistency in marketing practices. Requirements for Marketing Communications: Any marketing communication related to an offer to the public or the trading of EMTs must adhere to specific requirements: The marketing communication must be identifiable as a promotional activity. The information contained in the marketing communication must be fair, clear, and not misleading to the public. The details in the marketing communication must be consistent with the information presented in the crypto-asset white paper, the document outlining the issuer's plan for the digital asset. The marketing communication must also clearly state that a crypto-asset white paper has been published and provide the issuer's website address, a contact telephone number, and an email address. Right of Redemption Statement: All marketing communications must include an explicit statement that EMT holders have the right to redeem their tokens against the issuer at any time and at the tokens' face value. Publication of Marketing Communications: All marketing communications, including any modifications, should be published on the issuer's official website. Approval by Authorities: Competent authorities are not required to pre-approve marketing communications before publication. Notification to Authorities: However, issuers must be prepared to provide their marketing communications to competent authorities upon request. Timing of Dissemination: Marketing communications cannot be disseminated before the publication of the crypto-asset white paper. This restriction ensures potential investors can access the full white paper information before encountering promotional materials. This rule does not prevent issuers from conducting market soundings - gathering information on the interest of potential investors. Investment of Funds Received in Exchange for E-Money Tokens Article 54 of MiCA provides guidelines on how issuers of e-money tokens (EMTs) should manage and invest the funds they receive in exchange for their tokens. Funds Safeguarding: In line with Article 7(1) of Directive 2009/110/EC (the E-Money Directive), all funds received in exchange for EMTs must be safeguarded. This means that these funds must be protected and kept separate from other funds of the EMT issuer, ensuring they're readily available for redemption. Minimum Deposit Requirement: At least 30% of the received funds must be deposited into separate accounts in credit institutions. This provision ensures a portion of the funds is always readily available and is kept safe in a regulated institution. Investment of Remaining Funds: The remaining funds (i.e., 70% or less) should be invested in secure, low-risk assets. These assets should be: Highly liquid, meaning they can easily be sold or exchanged for cash without causing a significant change in their price. Carry minimal market, credit, and concentration risks, indicating they have a low chance of decreasing in value and do not focus the investments too heavily in one area. Denominated in the same official currency as the one referenced by the EMT. Wrapping Up Part One: Navigating E-Money Tokens We've just concluded the first installment of our guide on understanding e-money tokens under MiCA. The intricacies of this new legislation may be complex, but with each article, we aim to bring clarity and insight into this evolving landscape of digital finance. At Prokopiev Law Group, we pride ourselves on staying ahead of the curve in digital asset regulation. Our team keenly monitors the latest developments and is prepared to guide you through each step of your digital asset journey. Do you have questions or need assistance with a specific issue? Don't hesitate to reach out to us. We are eager to support you. Stay tuned for Part Two of our series on e-money tokens, where we'll continue our journey through the MiCA's provisions. Thank you for joining us in this first stage of the journey. Together, we're decoding the future of digital finance. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Welcome to our fourth part of exploring the Markets in Crypto-Assets (MiCA) regulation requirements for asset-referenced tokens. In this installment, we turn our focus towards significant asset-referenced token issuers. These tokens wield considerable influence within the market and, consequently, come under additional regulatory scrutiny. If you're new to our series or wish to revisit earlier parts, you can access Part 1, Part 2, and Part 3. Classification of asset-referenced tokens as significant Let's break down Article 43 of MiCA, which provides a roadmap to classifying asset-referenced tokens as 'significant.' The token in question must meet at least three of the following criteria: The token has more than 10 million holders. The value of the token, its market capitalization, or the issuer's reserve of assets exceeds EUR 5 billion. The average daily number and total value of transactions in the token during the relevant period exceed 2.5 million transactions and EUR 500 million, respectively. The token issuer is recognized as a gatekeeper in providing core platform services. The issuer's activities, including the use of the token for payments and remittances, are significant on an international scale. The token or its issuer is interconnected with the financial system. The issuer also issues at least one additional asset-referenced or e-money token and provides at least one crypto-asset service. If multiple issuers issue the same token, the classification is based on aggregated data from all issuers. The European Banking Authority (EBA) classifies a token as significant when it meets these criteria either following authorization or during two consecutive reporting periods. Once a token is classified as significant, supervisory responsibilities are transferred from the issuer's home Member State's competent authority to the EBA. This classification and associated supervisory responsibilities are reassessed annually. The Commission will determine further specifications of the criteria for a token to be classified as significant through delegated acts. Voluntary classification of asset-referenced tokens as significant Article 44 of MiCA sets out the provisions regarding the voluntary classification of asset-referenced tokens as significant asset-referenced tokens. These provisions are essential as they allow issuers to opt for their tokens to be recognized as significant, opening up a different regulatory landscape. Issuers can express their desire for their asset-referenced tokens to be deemed significant. This desire is to be notified immediately to the European Banking Authority (EBA), the European Central Bank (ECB), and, in certain cases, the central bank of the issuer's home Member State. For an asset-referenced token to be voluntarily classified as significant, the issuer must illustrate, through a detailed program of operations, that it will likely meet at least three of the criteria specified above. Upon receiving such a request, the EBA has 20 working days to prepare a draft decision based on the operational program, determining whether the token fulfills or is likely to fulfill the necessary criteria. This draft is then notified to the competent authority of the issuer's home Member State, the ECB, and, in certain cases, to the central bank of the Member State. All these authorities have 20 working days to provide observations and comments on the draft decision. The EBA will duly consider these before arriving at a final decision. The final decision is made within 60 working days of the initial notification, which is immediately conveyed to the issuer and its competent authority. If a token is classified as significant, the supervisory responsibilities shift from the competent authority to the EBA on the authorization date or when the crypto-asset white paper is approved. Specific Obligations Article 45 of MiCA deals with additional specific obligations that issuers of significant asset-referenced tokens must comply with. This extends to the basic requirements, with increased scrutiny given the potential systemic risks such tokens pose. Issuers of significant asset-referenced tokens must formulate, implement, and maintain a remuneration policy that encourages robust and efficient risk management. This policy must not incentivize the relaxation of risk standards. The issuers must ensure these tokens can be held in custody by various authorized crypto-asset service providers. This includes service providers outside of their group and should be done fairly, reasonably, and non-discriminately. Monitoring liquidity needs is vital. The issuers must assess and continuously keep track of liquidity requirements to fulfill token redemption requests. A comprehensive liquidity management policy and procedures should be implemented to maintain a resilient liquidity profile capable of withstanding stressful scenarios. Regular liquidity stress tests need to be conducted by these issuers. Depending on these tests, the European Banking Authority (EBA) might decide to bolster liquidity requirements. The stress test must cover all activities if an issuer offers more than one token or provides other crypto services. The reserve requirement percentage stated in Article 35(1) (own funds requirements) is set at 3% of the average reserve assets amount for these issuers. If multiple issuers offer the same significant token or an issuer offers multiple tokens with at least one classified as significant, all the above apply to each issuer. The EBA, in cooperation with the European Securities and Markets Authority (ESMA), will develop regulatory technical standards that specify the minimum requirements of the remuneration policy, liquidity management policy, and liquidity requirements, including setting a minimum deposit amount in each official currency. Furthermore, it will detail the process and timeframe for an issuer to adjust the amount of its own funds. Lastly, EBA, ESMA, and the European Central Bank (ECB) will issue guidelines for the common reference parameters of stress test scenarios to be included in the stress tests. These guidelines will be periodically updated, considering the latest market developments. * * * Comprehending the intricacies of MiCA can be a complex task, given its technical legal language and detailed stipulations. But remember, you're not in this alone. At Prokopiev Law Group, we specialize in demystifying these legal complexities for you. Whether you're an existing blockchain business, a startup looking to break into the crypto space, or an investor wanting to make sure your investments are legally protected, we're here to help you navigate through the ever-evolving digital asset landscape. Our objective is to empower you with the right legal intelligence so you can focus on what you do best - innovating and growing in the crypto space. Together, let's build a compliant, robust, and successful future in the digital asset universe. With Prokopiev Law Group at your side, rest assured, you're always a step ahead in your crypto journey. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Welcome to the third part of our exploration of the Markets in Crypto-assets (MiCA) regulations pertaining to asset-referenced tokens. Our journey has delved into the importance of organizational structure, risk management processes, financial requirements, and much more. You might find reading Part One and Part Two beneficial if you're just joining us. In today's discourse, we will unravel the intricacies of the reserve of assets requirement, a cornerstone provision critical in promoting asset-referenced tokens' stability. It's a complex topic that's crucial to understanding the intricate web of compliance and accountability that the MiCA legislation weaves. Reserve of Assets Obligation for Issuers of Asset-Referenced Tokens under MiCA Article 36 of MiCA lays out the essential requirements related to the obligation of asset-referenced token issuers to maintain a reserve of assets. It details how these reserves should be structured and managed, including the specific composition, segregation, valuation, and audit requirements. Reserve of Assets: Issuers of asset-referenced tokens must always establish and maintain a reserve of assets. This reserve should be managed in a way that (a) covers the risks associated with the assets referenced by the tokens; addresses liquidity risks linked to the permanent rights of token holders' redemption. Legal Segregation: In the best interest of the token holders, the reserve of assets must be legally separate from the issuer's estate and the reserves of other asset-referenced tokens. Operational Segregation: The reserve of assets must also be operationally segregated from the issuer's estate and the reserves of other tokens. Regulatory Technical Standards: The European Banking Authority (EBA), in cooperation with the European Securities and Markets Authority (ESMA) and the European Central Bank (ECB), is tasked with developing regulatory technical standards to specify liquidity requirements further. These will include (a) guidelines for daily and weekly liquidity; (b) techniques for liquidity management; (c) minimum deposit amounts in each official currency. Multiple Tokens and Issuers: Issuers that offer multiple asset-referenced tokens must operate separate reserves for each token. Similarly, different issuers offering the same token should maintain only one reserve. Effective Management: The issuer's management body must ensure the effective and prudent management of the reserve, matching the issuance and redemption of tokens with a corresponding increase or decrease in the reserve. Valuation: The reserve's aggregate value should be determined using market prices and at least equal the total value of claims against the issuer from circulating tokens. Stabilization Mechanism Policy: Issuers must have a clear policy outlining the stabilization mechanism of their tokens. This policy should cover several elements, including the assets referenced, risks, issuance and redemption procedures, investment policy, and more. Audits: An independent audit of the reserve of assets is required every six months. Audit results must be reported to the competent authority and made public, except in specific circumstances that may require a delay in publication. Valuation Methodology: Valuation at market prices should be conducted using the mark-to-market method when possible. When not possible, or if the market data isn't of good quality, a more conservative mark-to-model method is recommended. Custody of reserve assets Article 37 of the MiCA regulation deals with the custody of reserve assets by issuers of asset-referenced tokens. In layman's terms, this provision regulates how the companies that issue tokens representing some underlying value must manage and protect the assets that back up these tokens. This is to ensure that the value of the tokens remains stable and the interests of the token holders are safeguarded. 1. Custody Policies Companies that issue asset-referenced tokens must have policies to ensure that they always maintain control of the reserve assets backing the tokens. This includes ensuring the assets are not encumbered or used as financial collateral. These companies must be able to access the reserve assets quickly to meet any redemption requests from the token holders. Companies must avoid situations where custody of the reserve assets is concentrated with one custodian or where the reserve assets are concentrated in one area. 2. Multiple Tokens and Issuers If a company issues more than one type of asset-referenced token, it must have a separate custody policy for each reserve of assets. Multiple companies can maintain a single custody policy if they issue the same asset-referenced token. 3. Holding Reserve Assets Depending on the nature of the reserve assets, reserve assets must be held in custody by specific types of institutions, including crypto-asset service providers, credit institutions, or investment firms. This custody should be established five working days after the date of issuance of the asset-referenced token. 4. Due Diligence in the Selection of Custodians Companies must exercise due diligence when selecting and reviewing the custodians of their reserve assets. Custodians must be different from the issuer and should have the necessary expertise and reputation to act respectively. Companies must ensure that the reserve assets held in custody are protected against claims of the custodians' creditors. 5. Selection and Review of Custodians Custody policies should outline the criteria for selecting custodians and the process for reviewing these appointments. Companies should regularly review their custodian appointments, considering their exposure to the custodians and monitoring their financial conditions. 6. Custody Manner Custodians must follow specific rules when holding assets in custody, depending on the type of the reserve asset. All reserve assets should be identifiable as belonging to each reserve of assets. 7. Contractual Arrangements The appointment of custodians should be evidenced by a contractual arrangement, which regulates the flow of information necessary for them to perform their functions. 8. Honesty and Fairness Custodians should act honestly, fairly, professionally, independently, and in the interest of the issuers and the holders of asset-referenced tokens. 9. Conflict of Interest Custodians should not engage in activities that could create conflicts of interest unless they have properly separated their custody tasks from their potentially conflicting tasks and the potential conflicts of interest have been properly identified, monitored, managed, and disclosed. 10. Loss of Assets In case of a loss of a financial instrument or a crypto-asset held in custody, the custodian that lost the asset must compensate the issuer without undue delay unless the loss occurred due to an external event beyond their control. Investment of reserve assets by the issuers of asset-referenced tokens Investment Parameters: Issuers who wish to invest a portion of their reserve assets can do so, but certain stipulations bind them. Investments must be limited to highly liquid financial instruments, meaning they can be quickly and easily converted to cash without significant loss in value. These instruments must also demonstrate minimal market, credit, and concentration risks. Undertakings for Collective Investment in Transferable Securities (UCITS): Assets invested in UCITS are presumed to possess minimal market, credit, and concentration risks. This is only valid if the UCITS invests solely in assets specified by the European Banking Authority (EBA) and the issuer has taken steps to minimize concentration risk. Custody of Invested Assets: All financial instruments in which the reserve assets are invested must be held in custody. Profit, Loss, and Risk: Any gains or losses resulting from the investment of the reserve assets are solely the responsibility of the issuer of the asset-referenced token. This includes fluctuations in the value of the financial instruments and any counterparty or operational risks. Regulatory Technical Standards: In cooperation with the European Securities and Markets Authority (ESMA) and the European Central Bank (ECB), the EBA will create technical regulatory standards detailing the highly liquid financial instruments bearing minimal risks. These standards will consider the different types of assets that an asset-referenced token can reference and the correlation between those assets and the highly liquid financial instruments the issuers might invest in. Constraints will be imposed on the concentration to prevent the issuer from investing or holding in custody more than a certain percentage of reserve assets in any one entity or group. Redemption rights of holders of asset-referenced tokens Permanent Right of Redemption: Holders of asset-referenced tokens have a continuous right to redemption against the token issuers. This right also extends towards the reserve assets if the issuers are unable to fulfill their obligations. Issuers must develop, sustain, and enforce precise policies and procedures about this right of redemption. Redemption Process: When a token holder requests redemption, the issuer must either repay an amount equivalent to the market value of the referenced assets or deliver the assets themselves. This amount will be paid in funds other than electronic money. Issuers need to establish a policy detailing: The specific conditions, such as thresholds, periods, and timeframes, for exercising the right of redemption. The mechanisms and procedures to guarantee token redemption, even under stressed market circumstances, as well as during the implementation of a recovery plan or an orderly redemption. The valuation principles of the tokens and reserve assets upon redemption. The settlement terms for the redemption. The steps issuers take to manage fluctuations in the reserve assets to prevent any negative market impacts. Suppose issuers accept payment in funds other than electronic money, denominated in an official currency when selling a token. In that case, they must always offer an option to redeem the token in the same official currency. It is crucial to note that the redemption of asset-referenced tokens should not be subject to any fees except as provided in Article 46 of MiCA (recovery plans regulation). Granting interest in relation to asset-referenced tokens No Interest on Tokens: Issuers of asset-referenced tokens are expressly prohibited from granting any form of interest in connection with these tokens. Crypto-Asset Service Providers: The restriction also applies to crypto-asset service providers. When providing services related to asset-referenced tokens, these providers are also forbidden from granting interest. Definition of Interest: The term 'interest' is broadly defined here. Any compensation, benefit, or financial advantage related to the length of time a holder retains asset-referenced tokens is treated as interest. This includes net compensation, discounts, or similar financial benefits with the same impact as interest. Whether it's received directly from the issuer or third parties, and whether it's directly associated with the token or from the remuneration or pricing of other products - if it benefits the token holder in a way equivalent to receiving interest, it's treated as such. * * * That wraps up the third part of our detailed analysis of MiCA's provisions for asset-referenced tokens. Next time, we'll continue our journey through MiCA's comprehensive regulatory framework, shedding light on more legal intricacies and provisions. Stay tuned for the upcoming parts, where we continue to simplify and demystify the MiCA for you. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Welcome back to our comprehensive exploration of the Markets in Crypto-assets (MiCA) regulation! If you've missed out on our earlier discussion, no worries, you can catch up on Part 1 right here. We will focus more on asset-referenced tokens as we continue our journey through this vital regulatory framework. This segment will provide an in-depth understanding of more legal nuances associated with these tokens, their issuance, and the responsibilities of issuers, all under the scope of MiCA. The Revocation of Authorization for Asset-Referenced Tokens Issuers Under MiCA's framework, the authorization granted to issuers of asset-referenced tokens isn't perpetual and can be withdrawn under certain circumstances. This measure aims to maintain the crypto market's integrity and protect token holders' interests. Let's delve into the situations that can lead to the revocation of this authorization: Inactivity: If the issuer hasn't conducted any business for six months straight or hasn't utilized its authorization for a year, the competent authority can withdraw the authorization. Irregular Obtention: The authorization can be rescinded if the issuer acquired its authorization through improper methods, such as by providing false information in the application or the crypto-asset white paper. Non-compliance: If the issuer no longer meets the conditions under which the authorization was given or if the issuer seriously breaches the provisions of this MiCA. Redemption Plan: The authorization can be rescinded if the issuer has been subjected to a redemption plan. Ceasing Operations: If the issuer voluntarily renounces its authorization or decides to cease operations. Threat to Market Integrity: If the issuer's activities pose a significant risk to market integrity, financial stability, smooth operation of payment systems, or expose the issuer or the sector to severe money laundering and terrorist financing risks. Moreover, if the European Central Bank (ECB) or the relevant central bank opines that the asset-referenced token poses a significant threat to the smooth operation of payment systems, monetary policy transmission, or monetary sovereignty, the competent authority can withdraw the issuer's authorization. The competent authorities also may limit the amount of asset-referenced tokens to be issued or set a minimum denomination amount for the asset-referenced token. Indeed, the presence of asset-referenced tokens in financial systems can have significant implications for monetary policy and financial stability. For instance, if a token becomes widely adopted, it could influence the transmission mechanism of monetary policy or affect the functioning of payment systems. Moreover, in extreme cases, it could challenge the sovereignty of monetary policy if it starts replacing the national currency for a large number of transactions. Under the ECB or the relevant central bank opinion, the competent authority must either withdraw the issuer's authorization or impose restrictions to tackle such situations. It signals a clear message that the era of free crypto-assets circulation ends, and now crypto projects shall co-exist with traditional financial structures on an unequal basis. This significant development shows that the EU is taking crypto-assets very seriously. Modifying Crypto-Asset White Papers for Asset-Referenced Tokens Issuers of asset-referenced tokens must notify their competent authority in the home Member State about any planned changes to their business model, which might significantly influence the decision-making of current or potential token holders. Such changes include (non-exclusive list): Adjustments to governance arrangements, including reporting lines to the management body and risk management framework. Alterations to the reserve assets and the custody of these assets. Changes to the rights granted to asset-referenced token holders. Modifications to the method of issuance and redemption of the asset-referenced tokens. Updates to the transaction validation protocols for the asset-referenced tokens. Changes to the functioning of the issuer's proprietary distributed ledger technology (where applicable). Changes to mechanisms ensuring the liquidity of the asset-referenced tokens, including the liquidity management policy for issuers of significant asset-referenced tokens. Modifications to arrangements with third-party entities regarding reserve asset management, investment of the reserve, custody of reserve assets, and the distribution of tokens to the public (if applicable). Changes to the complaints-handling procedures. Updates to the risk assessment for money laundering and terrorist financing and related policies and procedures. These planned changes must be notified to the competent authority 30 working days before they are due to take effect. Once any such change is notified, the issuer must then draft a modified crypto-asset white paper, maintaining the consistency of information order with the original white paper. This draft must then be notified to the competent authority of the issuer's home Member State. Upon receipt, the authority must electronically acknowledge the receipt within five working days and approve or refuse the modified white paper within 30 working days from the acknowledgment of receipt. During the examination period, the competent authority may request additional information, explanations, or justifications concerning the draft. Liability of Issuers of Asset-Referenced Tokens for the Information Provided in a Crypto-Asset White Paper Issuers of asset-referenced tokens are legally responsible for the accuracy and clarity of information provided in their crypto-asset white papers, including any modified versions. Here are the key points: If an issuer provides incomplete, unfair, unclear, or misleading information in its crypto-asset white paper, they and their administrative, management, or supervisory body members are liable for any loss incurred due to this infringement. This liability applies to a holder of the asset-referenced tokens who has suffered the loss. Any attempt to exclude or limit this civil liability through contractual arrangements will be rendered legally ineffective. This rule ensures that issuers cannot evade their responsibilities to provide accurate and clear information. The burden of proof in such cases rests with the token holder. They must present evidence indicating issuers violation by providing incomplete, unfair, unclear, or misleading information, and that this information influenced the token holder's decision to purchase, sell, or exchange the asset-referenced tokens. However, issuers and their administrative, management, or supervisory body members are not liable for losses from reliance on a white paper summary, including any translations of it. The exceptions to this are if the summary is misleading, inaccurate, or inconsistent when read alongside the other parts of the crypto-asset white paper or if it does not provide key information that would help prospective holders decide whether to purchase the asset-referenced tokens when read in conjunction with the rest of the white paper. Lastly, the issuer may also be held accountable under specific national laws in addition to the liabilities stated in MiCA. Issuers' Obligations and Publication of the Crypto-Asset White Paper MiCA legislation outlines specific standards of conduct that issuers of asset-referenced tokens must adhere to and sets rules for publishing the crypto-asset white paper. Obligation to Act Honestly, Fairly, and Professionally: Issuers are obligated to act honestly, fairly, and professionally. Their communication with current and potential holders of asset-referenced tokens should always be clear, fair, and not misleading. The best interests of the token holders must be at the heart of the issuers' actions. This means that issuers should prioritize the holders' interests over their own or other competing interests. All token holders should be treated equally. However, there might be instances where certain holders receive preferential treatment. If that's the case, this must be disclosed in the crypto-asset white paper and, where applicable, in marketing communications. Publication of the Crypto-Asset White Paper: Approved crypto-asset white paper and modified versions should be published on the issuer's website. The crypto-asset white paper must be publicly accessible by the start date of the asset-referenced token's public offer, the asset-referenced token, or the token's admission to trading. The approved crypto-asset white paper and, where applicable, the modified version should remain available on the issuer's website as long as the public holds the asset-referenced token. Marketing Communications, Ongoing Information, and Complaints-handling Procedures Requirements for marketing communications: These communications must be readily identifiable as marketing material, and their content should be fair, clear, and not misleading. They must align with the information presented in the crypto-asset white paper. They should state that a crypto-asset white paper has been published, providing the issuer's website address, telephone number, and email for contact. A clear statement must be included indicating that token holders can redeem their tokens from the issuer at any time. Any modifications to marketing communications should be published on the issuer's website. Marketing communications must be provided to competent authorities upon request. No marketing communication should be disseminated before the publication of the crypto-asset white paper, though this doesn't affect the issuer's ability to conduct market soundings. For the continuous provision of information to token holders: Issuers should publicly disclose on their website, clearly, accurately, and transparently, the number of asset-referenced tokens in circulation, and the value and composition of the reserve assets. They should publish a summary of the audit report related to the reserve of assets and the full, unedited audit report on their website as soon as possible. Any event that could significantly impact the value of the tokens or the reserve of assets should be disclosed promptly and transparently on the issuer's website. Regarding the handling of complaints: Issuers should establish and maintain effective and transparent procedures for addressing complaints from token holders and other interested parties, including consumer associations representing token holders. If tokens are distributed partially or entirely by third-party entities, issuers should also facilitate handling complaints between token holders and these entities. Token holders should be able to lodge complaints with the issuers or, where applicable, with third-party entities free of charge. Issuers and, where applicable, third-party entities should develop a template for filing complaints and keep a record of all received complaints and the actions taken in response. Issuers should investigate all complaints promptly and fairly and communicate the results of these investigations to token holders within a reasonable period. Conflicts of Interest Issuers must set up and maintain policies and procedures to identify, prevent, manage, and disclose conflicts of interest. These conflicts of interest may arise between the issuer and any of the following parties: Their shareholders or members. Any direct or indirect shareholder or member with a significant holding in the issuers. The members of their management body. Their employees. The holders of asset-referenced tokens. Third party entities for operating the reserve of assets, and for the investment of the reserve assets, the custody of the reserve assets and, where applicable, the distribution of the asset-referenced tokens to the public. Regarding disclosure, issuers must clearly display the general nature and sources of these conflicts of interest on their website and the steps taken to mitigate them. This disclosure should be detailed enough to enable prospective token holders to make an informed decision about purchasing the asset-referenced tokens. Governance Arrangements MiCA stipulates the governance arrangements for issuers of asset-referenced tokens, covering a wide range of responsibilities. Key points to note are: Issuers must have robust governance structures, including a clear organizational structure with well-defined and transparent lines of responsibility. They should also have effective procedures to identify, manage, monitor, and report risks, alongside sound administrative and accounting procedures. The management body members must have a good reputation and possess appropriate knowledge, skills, and experience. They should not have any criminal records related to money laundering, terrorist financing, or any other offenses that could tarnish their reputation. They should also be able to commit enough time to their duties effectively. The management body should regularly assess and review the effectiveness of the policy arrangements and procedures. Shareholders or members with significant holdings in the issuers should also have a good reputation. Issuers must adopt policies and procedures to ensure compliance with MiCA. These should include policies and procedures on: Reserve of assets Custody of the reserve assets Rights granted to token holders Issuance and redemption of tokens Transaction validation protocols Functioning of the issuer's proprietary distributed ledger technology Ensuring the liquidity of tokens Arrangements with third-party entities for operating the reserve of assets Issuers' consent given to others that might offer or seek admission to trading the tokens Handling of complaints Conflicts of interest The issuer must have appropriate and proportionate systems, resources, and procedures to ensure their services' regular performance and safeguard data availability, authenticity, integrity, and confidentiality. If an issuer discontinues its services and activities, it must submit a plan to the competent authority for approval. Lastly, issuers must ensure regular audits by independent auditors, with the audit results being communicated to the issuer's management body and made available to the competent authority. Own Funds Requirements Issuers of asset-referenced tokens must maintain own funds that are at least equal to the highest of the following: €350,000. 2% of the average amount of the reserve of assets over the preceding six months. A quarter of the fixed overheads from the preceding year. If an issuer offers more than one type of asset-referenced token, the own funds should represent the sum of the average amount of the reserve assets backing each token. The own funds should consist of the Common Equity Tier 1 items and instruments, as referred to in Regulation (EU) No 575/2013, with full deductions applied. The competent authority in the issuer's home country may require the issuer to hold up to 20% more own funds than calculated by the rules mentioned earlier if assessments indicate a higher risk. The evaluation of risk can be based on factors such as the issuer's risk management processes, the quality, and volatility of the reserve assets, the rights granted to token holders, investment policy risks, the value and number of transactions settled in the token, the importance of the markets where the token is offered, and the market capitalization of the token. Issuers must conduct regular stress tests considering severe financial and non-financial stress scenarios. The competent authority may require the issuer to hold between 20% and 40% more own funds depending on the results. The European Banking Authority (EBA), in cooperation with the European Securities and Markets Authority (ESMA) and the European Central Bank (ECB), is tasked with developing regulatory standards to specify the procedures for adjusting to higher own funds requirements, the criteria for requiring a higher amount of own funds, and the minimum requirements for the design of stress testing programs. * * * We've now reached the conclusion of our in-depth exploration of the MiCA regulation concerning asset-referenced tokens. We hope this breakdown has made these complex legal provisions more understandable and accessible. In case you missed it, here's a link to the first part of our analysis on asset-referenced tokens under MiCA. And stay tuned because we're just getting started! In the next part of our series, we will delve into more intricate details and nuances of MiCA, continuing our journey through this critical regulation. Understanding regulations like MiCA is essential for anyone involved in the crypto asset industry. However, these texts can be dense and difficult to navigate, which is where we come in. We're here to help you make sense of these regulations and ensure that you understand the implications for your business or investment decisions. We're your reliable partner in navigating the complex landscape of crypto asset legislation. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The Markets in Crypto-Assets (MiCA) regulation is poised to bring far-reaching changes to the European Union's crypto-asset markets. This comprehensive framework aims to create a harmonized environment for issuing, offering, and providing services related to crypto-assets across the Union. In this article, we delve into one particular category of crypto-assets under MiCA—Asset-Referenced Tokens (ARTs)—and analyze the key regulatory provisions and their implications for issuers and service providers. Authorization for Asset-Referenced Tokens Only issuers of an asset-referenced token may bring it to market or seek its listing for trading within the EU. They must satisfy one of two conditions: First, they could be a legally recognized entity or another type of enterprise that has been established in the EU and holds authorization in line with Article 21 from their home Member State's competent authority. Alternatively, they could be a credit institution that adheres to the provisions of Article 17 of MiCA. The text of Article 16 also carves out a notable exception. With the token issuer's written consent, other individuals or entities can offer the asset-referenced token to the public or attempt to get it listed for trading. But they must ensure compliance with Articles 27 (Obligation to act honestly, fairly and professionally), 29 (Marketing communications requirements), and 40 (Prohibition of granting interest) of MiCA. MiCA takes an inclusive approach, granting 'other undertakings' the ability to issue asset-referenced tokens. However, depending on their legal form, they must offer a similar level of protection to third-party interests as legal entities and be subject to a similar level of prudential supervision. An issuer may not seek authorization if the average outstanding value of the token issued by an issuer doesn't surpass EUR 5 million (or an equivalent amount in another official currency) over 12 months, and the issuer is not connected to a network of other exempt issuers. Additionally, if the asset-referenced token is exclusively offered to, and can only be held by, qualified investors. However, even in these cases, issuers must still produce a crypto-asset white paper in compliance with Article 19 and submit it to the competent authority in their home Member State. An essential point to note is that the authorization granted to a person under this Article is recognized throughout the Union, allowing the issuer to offer their asset-referenced token across all Member States. Applying for Authorization of Asset-Referenced Tokens Article 18 of MiCA is the go-to guide for legal entities or other undertakings intending to introduce asset-referenced tokens to the public or seek their admission for trading. It starts by detailing the requirement for entities to submit an authorization application, as stipulated in Article 16, to their home Member State's competent authority. The application should include the following information: Applicant issuer's address and legal entity identifier. Applicant issuer's articles of association, if applicable. A program of operations outlining the intended business model. A legal opinion confirming that the asset-referenced token is neither a crypto-asset excluded from the scope of the regulation nor an e-money token. A comprehensive description of the applicant issuer's governance arrangements. If applicable, the internal control mechanisms and procedures, particularly those concerning money laundering and terrorist financing prevention, in cooperation with specific crypto-asset service providers. Identify the applicant issuer's management body members, with proof of their good repute and appropriate management skills. Proof of good repute of any direct or indirect shareholder or member with a qualifying holding in the applicant issuer. A crypto-asset white paper as per Article 19. Policies and procedures related to the issuer's operations. Description of contractual arrangements with third-party entities. Applicant issuer's business continuity policy. The internal control mechanisms and risk management procedures. Systems and procedures to ensure data availability, authenticity, integrity, and confidentiality. Applicant issuer's complaints-handling procedures. If applicable, a list of host Member States where the asset-referenced token is intended to be offered or for trading admission. If an issuer has already been authorized for one asset-referenced token, they need not re-submit information for another token. However, they must confirm that the non-resubmitted information remains up-to-date. To support the application, the issuer must provide proof of absence of criminal records or penalties related to commercial law, insolvency law, financial services law, anti-money laundering, counter-terrorist financing, fraud, or professional liability for all members of the management body and shareholders with qualifying holdings. Further, the European Banking Authority (EBA), in collaboration with the European Securities and Markets Authority (ESMA) and the European Central Bank (ECB), is tasked with developing regulatory technical standards to specify the information required in the application, as well as implementing technical standards to standardize forms, templates, and procedures for uniformity across the Union. White Paper Article 19 of MiCA provides clear guidelines on the content and form of a crypto-asset white paper when it comes to asset-referenced tokens. Here's a simplified breakdown of what it entails: A crypto-asset white paper must contain detailed information about the following: The issuer of the asset-referenced token. The asset-referenced token itself. The public offering or trading of the asset-referenced token. The rights and obligations attached to the asset-referenced token. The underlying technology used. The risks associated with the asset-referenced token. The reserve of assets. Any adverse impacts on the climate or environment caused by the consensus mechanism used to issue the token. If someone other than the issuer is offering the token or seeking its admission to trading, their identity and the reasons for their involvement. All this information must be fair, clear, not misleading, and should not contain any material omissions. It should also be presented in a concise and comprehensible manner. The white paper must explicitly state that the asset-referenced token may lose value, may not always be transferable, may lack liquidity, and is not covered by investor compensation or deposit guarantee schemes under certain EU directives. It should also include a confirmation from the issuer's management body that the white paper complies with the legal requirements and is accurate to the best of their knowledge. The white paper should have a summary that briefly explains key information in non-technical language to help prospective holders make informed decisions. It must also carry warnings about relying solely on the summary and the nature of the offer. It should also mention the date of its notification and include a table of contents. It should be made available in an official language of the home Member State or in a language customary in international finance. In case the token is also offered in another Member State, it must be made available in the official language of that state too. The white paper should be available in a machine-readable format. ESMA (European Securities and Markets Authority), in cooperation with EBA (European Banking Authority), will develop standard forms, formats, and templates for the white paper. ESMA will also develop regulatory technical standards on the content, methodologies, and presentation of information about sustainability indicators concerning adverse impacts on the climate and other environment-related adverse impacts. This is to take into account the different types of consensus mechanisms used, their incentive structures, the use of energy and natural resources, waste production, and greenhouse gas emissions. Granting or Refusing Authorization Article 21 of MiCA outlines the process for granting or refusing authorization to an applicant issuer. Here's a summary of its key points: The competent authorities must make a fully reasoned decision to grant or deny authorization to an applicant issuer within 25 working days of receiving opinions EBA and ESMA, if applicable (as specified in Article 20(5)). They must notify the applicant issuer of this decision within five working days. If the applicant issuer is authorized, their crypto-asset white paper is automatically approved. The competent authorities must refuse authorization if there are objective and demonstrable grounds for the following: The applicant issuer's management body may threaten its effective, sound, and prudent management, its business continuity, or the consideration of its clients' interests and market integrity. The management body members do not meet the criteria specified in Article 34(2). Shareholders and members with qualifying holdings do not meet the good reputation criteria set out in Article 34(4). The applicant issuer fails to meet or is likely to fail to meet any of the requirements under MiCA. The applicant issuer's business model seriously threatens market integrity, financial stability, and smooth operation of payment systems or exposes the issuer or the sector to significant risks of money laundering and terrorist financing. The competent authorities must also refuse authorization if the European Central Bank (ECB) or the applicable central bank gives a negative opinion based on the "risk posed to the smooth operation of payment systems, monetary policy transmission, or monetary sovereignty." Reporting Requirements If an organization issues tokens worth more than 100 million Euros, it must report certain information every three months to the relevant authority. This information includes: How many people hold the token. The value of the tokens issued and the size of the reserve assets. The daily average of transactions, both in terms of number and total value during the quarter. An estimate of the daily average of transactions that are related to the token being used as an exchange medium within a single currency area. In this context, "transaction" means any change in who has the right to the asset-referenced token resulting from the transfer of the token from one digital ledger account to another. Transactions that involve exchanging the token for funds or other crypto-assets with the issuing organization or a crypto-asset service provider aren't considered as use of the token as a medium of exchange unless there's evidence that the token is being used to settle transactions in other crypto-assets. If an organization issues tokens worth less than 100 million Euros, the relevant authority can still require it to comply with these reporting requirements. Service providers dealing with asset-referenced tokens must give the issuer the information they need to prepare the report. This includes information on transactions that occur outside the digital ledger. The ECB and other central banks may provide their own estimates of the average daily number and total value of transactions related to the use of the token as an exchange medium within a single currency area. The European Banking Authority (EBA), working closely with the ECB, will create draft regulatory technical standards. These standards will detail how to estimate the average daily number and total value of transactions that use the token as an exchange medium within a single currency area. The EBA will also develop draft implementing technical standards. These will set out standard forms, formats, and templates for the reporting and information provision. Restrictions Article 23 of MiCA introduces restrictions on the issuance of asset-referenced tokens that are widely used as a means of exchange. If the average daily number and value of transactions for an asset-referenced token within a single currency area exceed 1 million transactions and 200 million Euros respectively, over a quarterly period, the issuer must take action. Specifically, they must: Cease issuing that particular asset-referenced token. Within 40 working days of reaching the threshold, submit a plan to the competent authority outlining how they will keep the average daily number and value of transactions below the specified limits. The competent authority determines whether the threshold has been reached by using the highest figures from either the information provided by the issuer, their own estimates, or estimates provided by the European Central Bank (ECB) or another applicable central bank. In cases where multiple issuers issue the same asset-referenced token, the competent authority assesses whether the threshold is reached by aggregating data from all issuers. The plan submitted by the issuer to the competent authority must be approved. If necessary, the competent authority can require changes to the plan, such as setting a minimum denomination amount, to ensure a timely decrease in the token's use as a means of exchange. The competent authority will only allow the issuer to resume issuing the asset-referenced token when there is evidence that the average daily number and value of transactions within a single currency area is below 1 million transactions and 200 million Euros, respectively, over a quarterly period. * * * This concludes Part 1 of our asset-referenced tokens analysis under the Markets in Crypto-Assets (MiCA) regulation. We've broken down some complex legal provisions into more digestible information, but the journey continues. In the upcoming Part 2, we'll continue to delve deeper into more details to help you better understand this comprehensive legal framework. Remember, staying informed is key in navigating the dynamic landscape of crypto-assets. So, please tune in for our next installment to keep yourself ahead of the curve in this rapidly evolving field. Until then, continue exploring, learning, and growing in the world of digital assets! DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The Markets in Crypto Assets (MiCA) regulation has been a topic of intense discussion in the European Union. While it promises to bring much-needed clarity to the regulatory landscape of crypto assets, many experts believe that MiCA may already need to be updated in terms of its scope. This is because it fails to address more recent developments in blockchain applications, such as Non-Fungible Tokens (NFTs), Decentralized Finance (DeFi), Web 3, and algorithmic stablecoins. DeFi refers to financial services that are managed in a decentralized manner on a blockchain, using smart contracts to automate transactions. Some popular DeFi tools include decentralized exchanges (DEXs), lending platforms, and algorithmic stablecoins. These services offer advantages over traditional finance, such as increased accessibility, anonymity, reduced transaction costs, and faster execution of services. However, the multifaceted and complex nature of DeFi, along with the emerging concept of Decentralized Autonomous Organizations (DAOs), creates challenges for legislators and regulators in drafting clear definitions and rules. DAOs, for example, blur the line between active managers and passive token holders, making it difficult to determine the appropriate regulatory approach. MiCA Scope and Applicability in the Context of Decentralization Recital 22 of the MiCA regulation outlines the applicability of the regulation to various entities, services, and activities within the crypto-asset ecosystem. The recital emphasizes the following key points: Applicability to Natural and Legal Persons: MiCA applies to both natural and legal persons and certain other undertakings involved in the crypto-asset industry. The regulation governs the services and activities performed, provided, or controlled by these entities, directly or indirectly. Decentralized Services and Activities: MiCA acknowledges that some crypto-asset services and activities may be performed in a decentralized manner. The regulation applies to such decentralized activities when they are, in part or in whole, controlled or provided by an intermediary. Fully Decentralized Services: If a crypto-asset service is provided in a fully decentralized manner without any intermediary, it is excluded from the scope of MiCA. This provision underscores the regulation's limitation in addressing the complexities of DeFi and DAOs, as previously discussed. Crypto-assets with No Identifiable Issuer: Titles II, III, or IV of MiCA (regulation of asset-referenced tokens, e-money tokens, and other crypto-assets) do not apply to crypto-assets with no identifiable issuer. However, crypto-asset service providers offering services related to such crypto-assets are still subject to the regulation. "Other undertakings" under MiCA In the context of MiCA, "other undertakings" refers to entities involved in the crypto-asset ecosystem but do not fall under the category of natural or legal persons. These undertakings may engage in crypto-asset-related activities or services and are thus subject to the regulation. The term "undertaking" is consistently used throughout the MiCA text and can be found in Articles 2 (Scope), 3 (Definitions), in the definitions of "offeror" and "crypto-asset service provider," but is not explicitly defined in MiCA. Still, it is commonly used in EU law to describe an economic unit engaged in economic activity, irrespective of its legal form. The Treaty on the Functioning of the European Union (TFEU), particularly in the context of competition law, uses the term "undertaking" to refer to any entity engaged in economic activities, whether it is a sole trader, a partnership, a corporation, or any other form of business organization. In the case of MiCA, "other undertakings" could include entities that are not legal persons but still play a role in the crypto-asset space, such as partnerships, unincorporated associations, or other non-corporate entities involved in issuing or managing crypto-assets, providing crypto-asset services, or carrying out other related activities. While the term "undertaking" is broad and encompasses various types of entities involved in the crypto-asset ecosystem, it does not extend to fully decentralized entities. MiCA explicitly excludes fully decentralized systems or services that operate without any intermediary from its scope. This exclusion highlights the challenge the current MiCA framework faces in regulating decentralized entities. The exclusion implies that MiCA is primarily designed to address the risks associated with centralized actors in the crypto-asset space, leaving a regulatory gap for emerging decentralized systems. As the blockchain industry continues to evolve, it remains to be seen whether MiCA or future EU regulations will adapt to address the unique characteristics and risks associated with decentralized entities more effectively. "Fully Decentralized" The concept of "fully decentralized" services in the context of MiCA regulation is an important distinction when determining the applicability of the regulatory framework to various entities within the blockchain and crypto space. However, this term has yet to be universally accepted legal definition. One of the key characteristics of fully decentralized services is the absence of a central authority or intermediary, with decisions and operations being carried out autonomously by a network of participants. For instance, decentralized autonomous organizations (DAOs) may be considered fully decentralized if their governance structures and decision-making processes are based on collective input from token holders, without any single party having control or authority over the organization. Services like decentralized exchanges (DEXs) and lending platforms operate on smart contracts without intermediaries. Such platforms are governed by a decentralized network of participants, with no single party exercising control over the system. Legally speaking, "fully decentralized" may be interpreted as a system where no single entity or individual can be held accountable for the actions of the platform or service due to the distributed nature of decision-making and control. In the context of MiCA regulation, fully decentralized services are considered to be outside the scope of the regulation, as no identifiable issuer or intermediary is involved in providing the services. To determine whether a service is fully decentralized, regulators and legal experts may examine factors such as the extent of decentralization in decision-making processes, the role of token holders, and the level of human intervention or control over the platform's operations. Ultimately, the interpretation of "fully decentralized" will depend on each platform or service's specific circumstances and characteristics and may evolve as the industry and technology develop. DeFi: Decentralized Exchanges, Lending Systems, and Others Decentralized Finance (DeFi) has gained significant attention due to its benefits over traditional financial services. These services operate on a blockchain, leveraging smart contracts to automate transactions and remove intermediaries. Regulating DeFi presents unique challenges for legislators accustomed to traditional legal concepts and financial structures. The complexity, multifaceted nature, and rapidly evolving landscape of DeFi make it challenging to draft clear and compelling definitions and rules. One key challenge in regulating DeFi is the absence of clear distinctions between active stakeholders of Decentralized Autonomous Organizations (DAOs) and passive token holders with limited influence over the platform's operations. This lack of clarity complicates the regulatory process, as traditional regulations often depend on identifying specific actors and their roles within a system. Furthermore, DeFi's inherent decentralization and reliance on smart contracts make it resistant to centralized control, complicating enforcement efforts. As a result, regulators must adapt their approaches and consider novel regulatory frameworks to effectively address the unique characteristics of DeFi services and protect the interests of all stakeholders involved. * * * As the landscape of Web3 innovations continues to grow and diversify, it is evident that MiCA's current provisions may not adequately address these emerging technologies' complex and multifaceted nature. The legal implications surrounding the regulation of DeFi services and DAO governance highlight the need for adaptive and flexible regulatory approaches. In this ever-changing environment, it is critical for companies operating in the blockchain and crypto-asset space to stay informed about the evolving regulatory landscape and understand how MiCA may impact their businesses. Our team is dedicated to helping organizations navigate these complex regulations and ensure compliance with the full scope of MiCA obligations. Please get in touch with us for more details. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The Gatecoin liquidation case has drawn significant attention due to its implications for treating cryptocurrencies in insolvency proceedings. We will examine the court's approach to cryptocurrencies as property, trust issues related to cryptocurrencies and fiat currencies, and the unique BlueFire issue. Court's Recognition of Cryptocurrencies as Property In the Gatecoin liquidation case, the court addressed the contentious issue of whether cryptocurrencies qualify as property. The court recognized that cryptocurrencies have characteristics of property and held that they are capable of being held on trust. This decision aligns with an emerging global trend of treating digital assets as property in legal contexts, with potential ramifications for future cryptocurrency cases. Trust Analysis: Intention, Subject Matter, and Object The court applied the three certainties test to determine whether cryptocurrencies were held on trust for Gatecoin's customers: intention, subject matter, and object. The court found that the 2018 T&C governing the relationship between Gatecoin and its customers demonstrated no intention to create a trust. Despite the cryptocurrencies being identifiable and customers being ascertainable, the absence of intention prevented the establishment of a trust. Implications for Customers and Creditors The court's decision that cryptocurrencies were not held on trust for Gatecoin's customers has significant consequences for those customers and creditors. As a result of this finding, customers and creditors cannot assert proprietary claims over the cryptocurrencies held by Gatecoin. Instead, they will be treated as unsecured creditors in the liquidation process. This outcome highlights the importance of clearly establishing trust relationships in digital asset transactions and may influence the drafting of future contractual arrangements in the crypto industry. Court's Approach to Fiat Currencies In the Gatecoin liquidation case, the court also examined whether the fiat currencies held by Gatecoin were held on trust for its customers. The court applied the same trust analysis used for cryptocurrencies, focusing on the intention, subject matter, and object. It examined the relevant clauses in the 2018 T&C and other circumstances surrounding the relationship between Gatecoin and its customers. The court determined that the fiat currencies were not held on trust for Gatecoin's customers, similar to cryptocurrencies. The court reached this conclusion based on the lack of intention to create a trust in the 2018 T&C. The BlueFire Issue BlueFire, a market maker, played a significant role in the Gatecoin case. Gatecoin's largest account holder, BlueFire, did not trade in its own right but acted on behalf of Gatecoin. Gatecoin advanced credit lines to BlueFire for its trades, and BlueFire did not pay any account fees or charges like other customers. This unique relationship raised questions about the legal status of the currencies recorded in BlueFire's accounts. The BlueFire issue is significant because its resolution would impact the distribution of assets in Gatecoin's liquidation process and provide guidance on how similar arrangements between market makers and exchanges should be legally treated. The court found that the currencies recorded in BlueFire's accounts were assets of Gatecoin. The court's decision was based on the fact that BlueFire acted as an agent for Gatecoin and conducted transactions using funds provided by Gatecoin. The court also considered the Quistclose trust, which arises when funds are advanced for a specific purpose, and found that such a trust could apply to the fiat used to acquire cryptocurrencies on Gatecoin's behalf. This outcome demonstrates that the legal analysis applied to BlueFire's situation is different from that of the general customers, as the relationship between Gatecoin and BlueFire was distinct. Broader Implications The Gatecoin decision has significant implications for the cryptocurrency industry and future liquidation cases. The court has provided a legal basis for treating digital assets in insolvency and other legal proceedings by recognizing cryptocurrencies as property. This recognition is essential for the development and mainstream adoption of cryptocurrencies. Moreover, the court's analysis of trust issues highlights the importance of clearly defining the rights and obligations of parties in the crypto space. The decision serves as a reminder that the terms and conditions governing the relationship between exchanges and their customers can significantly impact the legal status of assets held on behalf of clients. The Gatecoin case also emphasizes the need for a thorough understanding of the legal implications of market-making arrangements. As the court treated BlueFire's situation differently from general customers, this decision guides future cases involving market makers and exchanges. The text of the decision you can read here. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

As part of the European Union's Markets in Crypto-Assets (MiCA) regulation, businesses dealing with crypto-assets must adhere to strict guidelines when drafting marketing communications. This article sheds light on the intricacies of MiCA's requirements for marketing communications, empowering businesses to navigate the regulatory landscape effectively. The Importance of Compliant Marketing Communications under MiCA Under the MiCA regulation, adhering to the requirements for marketing communications is vital for businesses issuing any of the three types of tokens classified by MiCA. Failing to comply with these regulations can impede the issuance and trading of crypto-assets, potentially limiting a business's growth and reach in the market. Article 4 of MiCA stipulates that for offers to the public of crypto-assets other than asset-referenced tokens or e-money tokens within the Union, businesses must draft their marketing communications in accordance with Article 7 and publish them per Article 9. Similarly, Article 5 demands compliance with Articles 7 and 9 when seeking admission to trading of such crypto-assets. For asset-referenced tokens, Article 29 lays down specific requirements for marketing communications related to public offerings or trading admissions. It necessitates that such communications conform to a set of predefined conditions to ensure transparency and fair representation of the crypto-assets. Likewise, marketing communications pertaining to e-money tokens are governed by similar rules that must be strictly followed to ensure regulatory compliance. The significance of adhering to these marketing communication requirements is evident in the fact that non-compliance can directly impact a business's ability to issue and trade crypto-assets in the European Union. Key Requirements for Marketing Communications Article 7 of the Markets in Crypto-Assets (MiCA) regulation outlines specific requirements for marketing communications related to the public offering or trading of crypto-assets, excluding asset-referenced tokens and e-money tokens. To help you navigate this regulation, we've broken down the key requirements: Identifiable as marketing communications: All marketing materials must be clearly identifiable as marketing communications to ensure transparency. Fair, clear, and not misleading: Information in marketing communications should be presented in a manner that is fair, clear, and not misleading to potential investors. Consistency with the crypto-asset white paper: The content of marketing communications must be consistent with the information provided in the crypto-asset white paper, where such a document is required by Article 4 or 5 of MiCA. Disclosure of white paper and contact information: Marketing communications should clearly state the availability of a crypto-asset white paper and provide the website address of the offeror, person seeking trading admission, or trading platform operator. Additionally, a telephone number and email address for contact should be included. Clear and prominent statement: Marketing communications must contain a clear and prominent statement indicating that no competent authority in the EU has reviewed or approved the marketing communication. The statement should also specify that the offeror, person seeking trading admission, or trading platform operator is solely responsible for the marketing communication content. No marketing communications before the publication of the white paper: If a crypto-asset white paper is required under Article 4 or 5, marketing communications cannot be disseminated before the white paper's publication. However, this does not affect the ability of the offeror, person seeking trading admission, or trading platform operator to conduct market soundings. Competent authority's power to assess compliance: The Member State's competent authority where marketing communications are disseminated holds the power to assess compliance with the requirements outlined in MiCA. "Fair, Clear, and Not Misleading" The "fair, clear, and not misleading" principle in marketing communications is crucial for maintaining transparency and trust with potential investors. While MiCA does not explain this principle, we can draw some insights from financial regulators. For instance, the UK Financial Conduct Authority (FCA) Handbook defines what "fair, clear, and not misleading" means. Although the FCA is a UK regulator not applicable to EU regulations, it can still serve as a helpful reference point. According to the FCA Handbook: Appropriate communication: Firms should communicate with their customers in an appropriate way, considering the means of communication, the information conveyed, and the nature of the customer and claim. Understanding of services: Firms should consider the average customer's understanding of the services provided. Logical presentation: Information should be presented in a logical order. Plain and intelligible language: Firms should use plain language and explain the meaning of such terms when jargon or technical terms are unavoidable. Prominence of key information: Key information should be prominent and easy to identify using headings, layout, display, and font attributes, as well as design devices such as tables, bullet points, and graphs. Avoiding unnecessary disclaimers: Firms should avoid using unnecessary disclaimers that may confuse or mislead customers. The European Securities and Markets Authority (ESMA) has published Guidelines on MiFID II product governance requirements, which include the "fair, clear, and not misleading" principle. The ESMA guidelines state that marketing communications should be accurate, balanced, and not disguise, diminish, or obscure important items, statements, or warnings. In addition, in Article 66, it is mentioned that: "Crypto-asset service providers shall not, deliberately or negligently, mislead a client in relation to the real or perceived advantages of any crypto-assets." Publication and Accessibility of Crypto-Asset White Papers and Marketing Communications Article 9 outlines the requirements for the publication and accessibility of crypto-asset white papers and marketing communications for crypto-assets other than asset-referenced tokens or e-money tokens. These requirements aim to maintain transparency and protect investors by making crucial information available. The main provisions of Article 9 are as follows: Publication on the website: Offerors and persons seeking admission to trading of crypto-assets must publish their crypto-asset white papers and, where applicable, marketing communications on their website. This website should be publicly accessible and provide the information at a reasonable time in advance of, and in any event before, the starting date of the offer to the public or the admission to trading of those crypto-assets. Availability: The published crypto-asset white papers and, where applicable, marketing communications must remain available on the website of the offerors or persons seeking admission to trading for as long as the public holds the crypto-assets. Consistency with notified versions: The published crypto-asset white papers and, where applicable, marketing communications should be identical to the version notified to the competent authority under Article 8, or, where applicable, to the version modified under Article 12. Modifications to Published Crypto-Asset White Papers and Marketing Communications Article 12 of MiCA addresses the modifications of published crypto-asset white papers and marketing communications for crypto-assets other than asset-referenced tokens or e-money tokens. The key provisions include: Reason for modification: Offerors, persons seeking admission to trading, or operators of a trading platform must modify their published crypto-asset white papers and marketing communications when there is a significant new factor, material mistake, or material inaccuracy capable of affecting the assessment of the crypto-assets. This requirement applies for the duration of the public offer or as long as the crypto-asset is admitted to trading. Notification to a competent authority: The modified crypto-asset white papers and marketing communications, along with the intended publication date and reasons for modification, must be notified to the competent authority of the home Member State at least seven working days before their publication. Public information: On the date of publication or earlier, if required by a competent authority, the offeror, the person seeking admission to trading, or the operator of the trading platform must immediately inform the public on its website of the notification of a modified crypto-asset white paper with the competent authority of its home Member State, providing a summary of the reasons for the modification. Consistency in a presentation: The order of information in the modified crypto-asset white papers and marketing communications must be consistent with that of the previously published documents. Notification to other authorities and ESMA: Within five working days of receipt of the modified documents, the competent authority of the home Member State must notify the modified documents to the competent authorities of the host Member States and communicate the notification and publication date to ESMA. ESMA will make the modified crypto-asset white paper available in the register upon publication. Publication on the website: Offerors, persons seeking admission to trading, or operators of trading platforms must publish the modified crypto-asset white papers and marketing communications, including the reasons for modification, on their website. Time-stamping and versioning: The modified documents must be time-stamped, and the most recent version must be marked as the applicable version. All modified documents should remain available for as long as the crypto-assets are held by the public. No extension of time limit: For utility tokens offering access to goods and services that do not yet exist or are not yet in operation, changes made in the modified documents shall not extend the 12-month time limit referred to in Article 4(6). Availability of older versions: Older versions of the crypto-asset white papers and marketing communications must remain publicly available on the website for at least 10 years after the date of publication, with a prominent warning stating that they are no longer valid and a hyperlink to the section where the most recent version is published. Marketing for Asset-Referenced Tokens Article 29 of MiCA establishes specific requirements for marketing communications associated with the public offering of an asset-referenced token or its admission to trading. Essential criteria for marketing communications: All marketing communications related to an asset-referenced token must meet the following requirements: (a) Be clearly identifiable as marketing communications; (b) Contain information that is fair, clear, and not misleading; (c) Present information consistent with the information found in the crypto-asset white paper; (d) Explicitly state that a crypto-asset white paper has been published, and clearly provide the issuer's website address, contact phone number, and email address. Right of redemption disclosure: Marketing communications must include an explicit and unambiguous statement informing token holders of their right to redeem the asset-referenced token against the issuer at any time. Publication of marketing communications: Issuers are required to publish marketing communications, along with any modifications, on their websites. Absence of prior approval requirements: Competent authorities shall not necessitate the prior approval of marketing communications before publication. Notification to competent authorities: Upon request, issuers must notify competent authorities of their marketing communications. Restrictions on marketing communications: No marketing communications should be disseminated before the publication of the crypto-asset white paper. However, this restriction does not hinder the issuer's ability to conduct market soundings. E-money Token Marketing Communications Article 53 of MiCA sets forth requirements for marketing communications related to the public offering of an e-money token or its admission to trading. Many of the provisions in this article are similar to those outlined in Article 29 for asset-referenced tokens. One significant difference between the requirements for asset-referenced tokens (Article 29) and e-money tokens (Article 53) is the specific disclosure regarding the right of redemption. For e-money tokens, marketing communications must include a clear and unambiguous statement informing token holders of their right to redeem the e-money token against the issuer at any time and at par value. Public Disclosure of Inside Information Timely and accurate disclosure: According to Article 88, issuers, offerors, and persons seeking admission to trading must promptly disclose inside information, which directly affects them. The disclosure should be made to allow the public to access, assess, and comprehend the information quickly, completely, and accurately. Separation from marketing: The disclosure of inside information must not be combined with marketing activities. This separation aims to prevent potential conflicts of interest and maintain the integrity of the disclosed information. Website publication and retention: Issuers, offerors, and persons seeking admission to trading must publish and maintain all disclosed inside information on their website for at least five years. * * * The new MiCA regulation represents a significant step towards creating a comprehensive legal framework for the crypto-asset industry in the European Union. While this regulation is crucial for fostering transparency, trust, and fair market practices, it can be challenging for businesses and individuals to navigate and understand its intricate provisions and requirements. We are well-equipped to help you analyze and comply with the MiCA regulation. Our team is dedicated to providing support, guidance, and tailored solutions to ensure your business operations align with the regulatory environment. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The Markets in Crypto-Assets Regulation (MiCA) represents a significant milestone in the European Union's regulatory landscape for digital assets. This analysis aims to provide an overview of the key provisions and requirements laid out by MiCA, specifically focusing on white papers for crypto-assets other than e-money tokens and asset-referenced tokens. By examining the scope of the application, the content requirements, and the regulatory authorities involved, this analysis seeks to offer valuable insights for stakeholders in the crypto-asset industry looking to navigate the MiCA framework. Definition of White Papers As defined under MiCA, white papers are comprehensive documents outlining essential information about a crypto-asset offering or an admission to trading on a trading platform. These documents aim to provide potential clients with a clear understanding of the project's objectives, the technology employed, the risks associated, and the rights conferred to the token holders, among other critical details. Scope: Tokens Other than E-Money and Asset-Referenced Tokens This analysis covers white papers on crypto-assets that do not fall under the e-money or asset-referenced tokens category. E-money tokens are digital representations of fiat currency that can be electronically stored and used as a medium of exchange. On the other hand, asset-referenced tokens are a class of crypto-assets that maintain a stable value by referring to a basket of assets, such as fiat currencies, commodities, or other crypto-assets. By focusing on white papers for tokens outside these categories, this analysis seeks to provide a comprehensive understanding of the regulatory framework established by MiCA for a broader range of crypto-assets. Offers to the Public of Crypto-Assets and Admission to Trading of Crypto-Assets A person cannot make an offer to the public and admission to trading a crypto-asset other than an asset-referenced token or e-money token in the Union unless they have: a) Drawn up a crypto-asset white paper. b) Notified the crypto-asset white paper to the competent authority. c) Published the crypto-asset white paper following Article 9 of MiCA. In cases where an offer to the public of a crypto-asset is exempt from the obligation to publish a crypto-asset white paper, but a white paper is voluntarily drawn up, the provisions of MiCA still apply. Main Content Requirements A crypto-asset white paper must contain the following information about: the offeror or the person seeking admission to trading, including their name, legal form, registered address, head office (if different), registration date, legal entity identifier, or another identifier required pursuant to applicable national law, and contact details; the issuer if different from the offeror or person seeking admission to trading; the trading platform operator in cases where it draws up the crypto-asset white paper; the crypto-asset project, including details about the offer, the crypto-asset, the rights and obligations attached to the crypto-asset, the underlying technology, the risks involved, and the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the crypto-asset. The white paper must also contain: a clear and prominent statement on the first page of the white paper, stating that the offeror is solely responsible for the content of the crypto-asset white paper and that it has not been approved by any competent authority in any Member State of the European Union; a clear and unambiguous statement regarding potential risks associated with the crypto-asset, including the possibility of losing its value, transferability, liquidity, and coverage by investor compensation or deposit guarantee schemes; a statement from the management body of the offeror, a person seeking admission to trading, or the operator of the trading platform confirming that the white paper complies with MiCA and that the information presented is fair, clear, and not misleading; a summary of the crypto-asset white paper providing key information in brief and non-technical language; the date of the white paper's notification and a table of contents. Language Requirements The crypto-asset white paper must be drafted in an official language of the home Member State or a language customary in the sphere of international finance. Suppose the crypto-asset is also offered in another Member State. In that case, the white paper must be drafted in an official language of the host Member State or a language customary in the sphere of international finance. Additionally, the white paper must be made available in a machine-readable format. Publication Requirements Offerors and persons seeking admission to trading of crypto-assets other than asset-referenced tokens or e-money tokens must: a) Publish their crypto-asset white papers and, where applicable, their marketing communications, on their website, which should be publicly accessible. b) Make the white papers and marketing communications available on their website at a reasonable time in advance of, and in any event before, the starting date of the offer to the public of the crypto-assets or their admission to trading. c) Ensure the published crypto-asset white papers and, where applicable, the marketing communications, remain available on their website for as long as the public holds the crypto-assets. d) Ensure that the published crypto-asset white papers and, where applicable, the marketing communications, are identical to the version notified to the competent authority or, where applicable, to the version modified. Notification Process The approval process for crypto-asset white papers and marketing communications is as follows: a) Offerors, persons seeking admission to trading, or operators of trading platforms for crypto-assets other than asset-referenced tokens or e-money tokens must notify their crypto-asset white papers to the competent authority of their home Member State. b) Marketing communications, upon request, must be notified to the competent authority of the home Member State and the competent authority of the host Member State when addressing prospective holders of crypto-assets other than asset-referenced tokens or e-money tokens in those Member States. c) Competent authorities shall not require prior approval of crypto-asset white papers or any marketing communications relating to that before their respective publication. d) The notification of the crypto-asset white paper must be accompanied by an explanation of why the crypto-asset described in the white paper should not be considered a crypto-asset excluded from the scope of MiCA, an e-money token, or an asset-referenced token. No Additional Information Requirements The MiCA regulation specifies that offerors and persons seeking admission to trading of crypto-assets, other than asset-referenced tokens or e-money tokens, who have published a compliant crypto-asset white paper and, if applicable, an updated version, won't be subject to any further information requirements concerning the public offer of that crypto-asset or its admission to trading. This provision ensures that the regulatory framework remains streamlined, allowing offerors and persons seeking admission to trading to operate without encountering redundant or excessive requirements. Right of Withdrawal Under the MiCA regulation, clients can withdraw their acceptance of a crypto-asset offer within three business days without giving any reason or incurring any penalty. Offerors of crypto-assets must inform potential investors about this right in their crypto-asset white paper, ensuring they know their ability to reconsider their decision. Liability for Information in a Crypto-Asset White Paper If an offeror, a person seeking admission to trading, or an operator of a trading platform provides incomplete, unfair, unclear, or misleading information in a crypto-asset white paper or an updated version, they may be held liable for any loss incurred by a crypto-asset holder due to that infringement. Any contractual exclusion or limitation of this civil liability will not have any legal effect. Crypto-asset holders are responsible for providing evidence that the offeror, person seeking admission to trading, or trading platform operator has provided misleading or inaccurate information, influencing their decision to purchase, sell, or exchange the crypto-asset. However, the MiCA regulation states that offerors, persons seeking admission to trading, and trading platform operators will not be held liable for any loss incurred by a crypto-asset holder due to reliance on the information provided in a summary, as long as the summary isn't misleading, inaccurate, or inconsistent with other parts of the white paper, and it provides key information to help prospective holders make informed decisions about purchasing the crypto-asset. * * * In conclusion, the MiCA regulation establishes a comprehensive framework for the crypto-asset market, ensuring transparency, fairness, and investor protection. However, navigating the legal complexities and requirements can be challenging. Prokopiev Law Group is well-equipped to guide you through this regulatory landscape, providing expert advice and assistance in understanding and complying with the MiCA provisions. Our team is dedicated to helping you successfully navigate the world of crypto-assets while adhering to the highest legal standards. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The regulation of crypto-assets in the European Union has significantly evolved with introduction of the Markets in Crypto-Assets (MiCA) framework. Designed to establish a comprehensive legal structure for the issuance, trading, and management of crypto-assets, MiCA aims to ensure consumer protection, market integrity, and financial stability. As part of this regulatory framework, MiCA offers specific guidance on the classification and treatment of utility tokens, digital assets that give holders access to goods or services supplied by their issuers. This article will delve into the category of utility tokens under MiCA, discussing the requirements imposed on utility token issuers and the legal obligations they must adhere to for compliance. Understanding Utility Tokens: The Context of MiCA's Crypto-Asset Classification Before diving into the specifics of utility tokens under MiCA, it is essential to grasp the broader classification of crypto-assets within this regulatory framework. By outlining the different types of tokens recognized by MiCA, we can better understand utility tokens' unique nature and purpose compared to other crypto assets. E-money tokens are the first type of crypto-assets defined under MiCA. These tokens are designed to serve as electronic surrogates for coins and banknotes and aim to stabilize their value by referencing a single official currency. Like electronic money defined in Directive 2009/110/EC, e-money tokens are typically used for making payments and executing transactions. Asset-referenced tokens constitute the second category of crypto-assets under MiCA. These tokens seek to stabilize their value by referencing another value, right, or a combination thereof, including one or several official currencies. Asset-referenced tokens cover all other crypto-assets, excluding e-money tokens, that derive value from underlying assets. This broad definition is intended to prevent circumvention of the regulation and future-proof the MiCA framework. The third category of crypto-assets under MiCA includes a wide variety of tokens that are neither asset-referenced tokens nor e-money tokens. These "other tokens" encompass a diverse range of crypto-assets with different purposes and characteristics. Among these other tokens are utility tokens, which serve a specific function within a defined ecosystem. Not all other tokens are utility tokens, as this category may also include tokens with varying functionalities or use cases. Defining Utility Tokens under MiCA MiCA provides a specific definition for utility tokens, essential for understanding their regulatory treatment within the European Union. According to MiCA, a utility token is: "a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer." Let's break down each element of this definition: Type of crypto-asset: Utility tokens are considered a subcategory of the "other tokens" classification. As previously mentioned, they are distinct from asset-referenced tokens and e-money tokens. Intended purpose: The primary purpose of utility tokens is to grant their holders access to goods or services. They are not meant for investment purposes or to serve as a store of value. Goods or services: Utility tokens can be used to access various types of goods or services, such as digital products, premium features, exclusive content, or discounts. These goods and services are usually specific to the ecosystem of the token issuer. Supplied by the issuer: The issuer of the utility token is responsible for providing the goods or services associated with the token. This means that the token's value and usability are tied to the performance and credibility of the issuer, as well as the availability and quality of the goods or services offered. In addition to the basic definition provided in MiCA, the regulation also outlines specific conditions and exemptions related to utility tokens. These additional elements help to clarify the regulatory treatment of utility tokens in certain situations: Existing goods or services: MiCA emphasizes that no requirements should apply to utility tokens granting access to existing goods or services, enabling holders to collect or use the goods. This means that utility tokens tied to products or services that are already available are subject to fewer regulatory obligations. Limited network of merchants: If the utility token can only be used in exchange for goods and services within a limited network of merchants with contractual arrangements with the issuer, then the token may be exempt from certain requirements. Exclusions: The exemptions for utility tokens do not apply to crypto-assets representing stored goods not intended to be collected by the purchaser or to those designed for a continuously growing network of service providers. Evaluation by a competent authority: The limited network exemption should be assessed by the competent authority each time an offer, or the aggregate value of multiple offers, exceeds a certain threshold. This means that a new offer should not automatically benefit from a previous offer's exemption. Cessation of exemptions: The exemptions granted for utility tokens will no longer apply when the issuer or another person acting on their behalf communicates their intention to seek admission to trading, or when the exempted crypto-assets are admitted to trading. Duration limitations for offers: MiCA also establishes a duration limitation for offers of utility tokens related to goods or services that do not yet exist or are not yet operational. In such cases, the duration of the offer, as described in the crypto-asset white paper, should not exceed 12 months. Requirements for Issuers of Utility Tokens under MiCA In this section, we will examine the main requirements for issuers of utility tokens in the areas of disclosure, information provision, and token redemption. Disclosure in the Crypto-Asset White Paper Issuers of utility tokens are required to prepare a crypto-asset white paper, which should disclose essential information about the utility token project. The white paper should outline key features of the goods or services to be developed, the project's goals, and the intended use of the funds raised through the token sale. Information on Goods or Services In addition to the crypto-asset white paper, issuers of utility tokens must provide information about the quality and quantity of goods or services to which the utility tokens give access. This information should be clear, accurate, and up-to-date, enabling token holders to understand the nature and scope of the goods or services they are entitled to access or purchase using their utility tokens. Redemption of Utility Tokens Issuers of utility tokens are also required to provide information on how utility tokens can be redeemed for the goods or services to which they relate. This may include details about the redemption process, any restrictions or limitations on redemption, and the steps token holders need to take to access the goods or services. Conclusion: Understanding Utility Tokens under MiCA The Markets in Crypto-Assets (MiCA) Regulation brings much-needed clarity and legal certainty to the European crypto-asset market, including the classification and treatment of utility tokens. By distinguishing utility tokens from e-money tokens and asset-referenced tokens, MiCA establishes specific requirements and exemptions that cater to the unique characteristics of utility tokens. As the regulatory landscape evolves, it is important for projects to ensure their compliance with the latest regulations and avoid potential pitfalls that may arise from non-compliance. At Prokopiev Law Group, our expert team can help you classify your project's token according to MiCA and provide tailored advice on how to be compliant. We understand the complexities of the crypto-asset market and are well-versed in the MiCA Regulation. By working with us, you can navigate the regulatory landscape with confidence, ensuring the success and longevity of your crypto-asset project. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

Decentralized autonomous organizations (DAOs) have revolutionized the way we think about governance and decision-making in the digital space. However, as with any organization, DAOs are not immune to the actions of bad actors who may try to exploit their democratic nature for personal gain or sabotage. A recent incident involving a prominent DAO project highlights the importance of addressing this issue and taking necessary legal measures to safeguard the ecosystem. Creating Transparent Decision-making Processes Transparency is crucial in building trust within a DAO and mitigating the influence of bad actors. By implementing transparent decision-making processes, DAOs can ensure that all members have access to relevant information and know how decisions are made. This can be achieved by using blockchain technology to record and track all voting activities, proposals, and discussions in a secure and tamper-proof manner. Additionally, DAOs should establish clear voting procedures and mechanisms for proposing and reviewing organizational changes. These processes should be straightforward and accessible to all members, allowing for equitable participation and avoiding undue concentration of power. Setting Community Guidelines and Code of Conduct Striking the right balance between censorship-resistant ideals of crypto and ensuring the achievement of project goals is crucial for the success of a DAO. To achieve this balance, DAOs should develop and implement clear community guidelines and a code of conduct. These documents should establish all members' expected behaviors and standards, setting clear boundaries and norms for communication and collaboration. The community guidelines should be designed to maintain a healthy and productive environment while respecting the fundamental principles of decentralized governance. They should cover topics such as conflict resolution, reporting mechanisms for inappropriate behavior, and the consequences of violating established rules. Enforcing Rules Consistently and Fairly Once community guidelines and a code of conduct are in place, enforcing these rules consistently and fairly is vital to maintain a healthy community and deter bad actors. This may involve appointing community moderators responsible for monitoring discussions and ensuring participants adhere to the established guidelines. Moderators should be trained to handle challenging situations impartially, ensuring that rules enforcement does not devolve into censorship or favoritism. To maintain transparency and trust, DAOs may consider implementing an appeals process for members who feel that the moderation team has unfairly treated them. This process should be documented and accessible to all members, allowing for resolving disputes fairly and equitably. As artificial intelligence (AI) technology advances, DAOs may also consider utilizing AI-powered tools to assist with moderation tasks. AI algorithms allow DAOs to analyze discussions and detect patterns indicating inappropriate behavior, potential conflicts, or coordinated attacks. AI-driven moderation tools can help to enforce community guidelines and the code of conduct consistently by automatically flagging content that violates established rules. Moreover, these tools can be programmed to remain unbiased and adhere to the principles of decentralized governance. However, DAOs should exercise caution when relying on AI for moderation, as algorithms may not accurately interpret context or understand the nuances of human communication. Balancing Moderation and Community Autonomy in DAOs While implementing moderation strategies is essential for maintaining a healthy and constructive environment within a DAO, it is equally important to consider the potential impact of moderation on users' reliance on a particular team or individual. Excessive dependence on moderators can be counterproductive for community-driven organizations, as it may undermine the decentralized nature and self-governance ideals of DAOs. To address this challenge, DAOs should carefully design their moderation policies and practices, ensuring they align with the organization's values and principles. Encouraging community participation in moderation tasks and decision-making can help to distribute power and responsibility, fostering a sense of ownership and accountability among members. Additionally, DAOs may establish clear escalation paths for resolving disputes and addressing potential abuse of moderation powers. This includes creating mechanisms for community members to voice concerns and participate in the resolution process and implementing checks and balances to prevent the concentration of power within a small group. Implementing Access Controls and Verification Implementing robust access controls and verification measures to protect DAOs from potential threats posed by bad actors is essential. These security precautions help ensure that only legitimate members can participate in decision-making processes and access sensitive information. One practical approach is to require members to undergo a thorough identity verification process upon joining the DAO. By confirming the identity of each participant, DAOs can minimize the risk of infiltration by malicious actors seeking to disrupt the organization or gain unauthorized access to resources. Additionally, multi-factor authentication (MFA) can be employed to secure member accounts further and protect against unauthorized access. Moreover, access controls can limit the scope of actions each member can perform within the DAO. By assigning specific roles and permissions to individual members, DAOs can maintain control over their resources and prevent unauthorized actions or misuse of power. Promoting Positive Interactions and Collaboration To foster positive interactions and collaboration among members, DAOs should actively promote a culture of mutual respect, trust, and support. This can be achieved by recognizing and celebrating individual contributions, providing opportunities for skill development, and encouraging members to work together on projects and initiatives. Additionally, DAOs can organize regular community events, such as meetups, workshops, and online forums, where members can share ideas, discuss challenges, and collaborate on solutions. By facilitating open communication and teamwork, DAOs can create a strong and cohesive community better equipped to tackle challenges and achieve collective goals. The Road to a Resilient DAO Ecosystem In the rapidly evolving world of decentralized governance, DAOs must take proactive measures to protect their organizations from the potential threats posed by bad actors. By implementing clear governance frameworks, effective moderation strategies, robust dispute resolution mechanisms, and enhanced security measures, DAOs can build a strong foundation for their communities. As DAOs continue to grow and evolve, they must remain adaptable and resilient while consistently striving to maintain a secure and supportive environment for their members. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.

The European Union has long recognized the importance of secure digital interactions and the need for a unified approach to electronic identification and trust services. eIDAS 2.0, the latest iteration of the Electronic Identification, Authentication and Trust Services (eIDAS) regulation, aims to strengthen the digital infrastructure within the EU further, providing a more secure and seamless environment for electronic transactions. This enhanced regulation brings new guidelines and mechanisms, addressing vital concerns surrounding personal data protection and the ever-evolving blockchain technology. eIDAS 2.0 builds upon the foundation laid by its predecessor, expanding the scope of services covered under the regulation and emphasizing the importance of interoperability among EU member states. This initiative ensures a harmonized legal framework that fosters trust in electronic transactions, catering to businesses, citizens, and public authorities' diverse needs. One of the key advancements introduced in eIDAS 2.0 is the incorporation of digital wallets, which offer users enhanced control over their personal data and streamline access to various online services. Digital wallets have emerged as a powerful tool to protect individuals' privacy rights, as they allow users to selectively share their information based on the requirements of each transaction. In developing eIDAS 2.0, the EU has been cautious in addressing emerging technologies like blockchain's legal and technical aspects. This has led to establishment of specific guidelines and standards that account for the unique challenges posed by decentralized systems while ensuring the protection of personal data and fostering trust in digital interactions. The Evolution of Electronic Identification and Trust Services eIDAS: The Foundation for Digital Identity The eIDAS regulation laid the groundwork for a unified approach to electronic identification, authentication, and trust services in the European Union. It aimed to foster cross-border electronic interactions and create a robust legal framework that would facilitate the use of digital identification across EU member states. The regulation initially focused on electronic signatures, electronic seals, and electronic time stamps, ensuring their legal validity and encouraging businesses' and citizens' adoption. The eIDAS regulation also established the rules for the mutual recognition of national electronic identification schemes, enabling individuals and businesses to access public and private online services in other EU countries using their national eIDs. eIDAS 2.0: Enhancing Security and Expanding Scope Building on the success of its predecessor, eIDAS 2.0 introduces several critical updates to enhance further the security and reliability of electronic identification and trust services within the EU. This updated regulation expands the scope of services covered, including electronic registered delivery services, electronic certificates for authentication, and electronic seals for electronic documents, among others. eIDAS 2.0 also introduces the concept of Qualified Trust Service Providers (QTSPs), subject to more stringent security and reliability requirements. QTSPs must undergo regular audits to ensure their continued adherence to the high standards set by the EU. One of the most notable advancements in eIDAS 2.0 is the implementation of digital wallets, which provide a secure platform for individuals and businesses to manage their electronic identification and trust services. These digital wallets promote data privacy by allowing users to control the information they share during transactions, sharing only the necessary data for each specific transaction. In addition, eIDAS 2.0 addresses the challenges posed by emerging technologies like blockchain, incorporating specific guidelines and standards to accommodate the unique nature of decentralized systems. Digital Wallets: A Key Component of eIDAS 2.0 The Concept of Digital Wallets Digital wallets represent a significant innovation within the eIDAS 2.0 framework. They are designed as secure platforms that allow individuals and businesses to store, manage, and share their electronic identification and trust services. Digital wallets enable users to access various online services and conduct transactions with a single, unified digital identity, eliminating the need for multiple usernames and passwords. Each EU member state must provide digital wallets to its citizens, ensuring that all individuals can benefit from this essential feature of eIDAS 2.0. The wallets are designed to be interoperable, enabling cross-border usage and facilitating electronic interactions across the European Union. Advantages of Digital Wallets for Data Privacy Digital wallets offer advantages when it comes to data privacy. One of their primary benefits is the ability for users to control the information they share during transactions. Unlike traditional identity verification methods, which often require users to disclose unnecessary personal data, digital wallets allow individuals to share only the specific data required for a given transaction. For instance, when purchasing age-restricted products, users can verify their age without revealing additional personal information such as their home address or driver's license number. Interoperability: Bridging the Gap between EU Member States The Role of eIDAS Nodes Interoperability is a critical aspect of the eIDAS 2.0 regulation, ensuring that electronic identification and trust services can function seamlessly across the EU. To achieve this goal, eIDAS nodes have been established as part of the EU's IT infrastructure. These nodes are a national government-based public servers network facilitating communication and data exchange between EU member states. When users access online services across borders, eIDAS nodes authenticate their electronic identification and trust services in real-time. This process occurs in the background, allowing users to experience a seamless and secure digital environment as they interact with various services throughout the EU. The Importance of Interoperability for Businesses and Citizens Interoperability is vital for businesses and citizens as it streamlines cross-border transactions and electronic interactions. For small and medium-sized enterprises (SMEs), interoperability enables them to expand their reach and access new markets without additional resources or expertise. For citizens, interoperability allows them to use their electronic identification and trust services across the EU without needing multiple accounts or credentials. For example, a German citizen working in Italy can use their German eID to access Italian government services without needing an Italian eID. Furthermore, interoperability helps to reduce the risk of fraud and identity theft. By promoting the use of secure and standardized electronic identification and trust services across the EU, eIDAS 2.0 creates a more robust digital environment where users can confidently conduct transactions. The Future of Digital Identity and eIDAS 2.0 The Role of Industry Leaders and Alliances The evolution of digital identity, particularly in the context of eIDAS 2.0, relies heavily on the collaboration and innovation of industry leaders and organizations working together to establish best practices, standards, and technologies. As digital identity becomes increasingly critical for secure online interactions, various alliances, and organizations have emerged to drive the conversation surrounding policy, standards, and interoperability. Examples of such organizations include: The FIDO (Fast Identity Online) Alliance. The Accountable Digital Identity Association (ADIA). The Decentralized Identity Foundation (DIF). The Trust Over IP Foundation. These groups aim to promote a unified and secure digital identity infrastructure that can be adopted across different sectors, countries, and technologies. Promoting Interoperability and a Seamless Digital Experience One of the primary challenges in the digital identity landscape is ensuring seamless interoperability between different electronic IDs, systems, and jurisdictions. For users to fully realize the benefits of digital identity, it is crucial that they can access services and authenticate their identities across borders with minimal friction. To achieve this, efforts are being made to develop standardized protocols and frameworks that enable secure communication and recognition between different eID systems, such as the eIDAS nodes that facilitate intergovernmental communication and authentication in real time. These initiatives are crucial in promoting a seamless digital experience for businesses and citizens alike. Moreover, fostering interoperability and a unified approach to digital identity also involves addressing concerns related to data protection, privacy, and the application of emerging technologies like blockchain. By carefully balancing the need for security and privacy with the benefits of enhanced online access and convenience, industry leaders, governments, and alliances can work together to create a digital identity ecosystem that is secure, user-friendly, and efficient. WEB3 The implementation of eIDAS 2.0 has the potential to significantly impact the emerging Web3 sphere by facilitating a more decentralized, secure, and user-centric online environment. As Web3 aims to create a more decentralized internet, where users have greater control over their data and digital assets, eIDAS 2.0 can provide a standardized framework for digital identity management across decentralized platforms. By incorporating digital wallets and interoperable eID systems, users can securely authenticate their identities and transact on various decentralized platforms without compromising privacy. *** In conclusion, as eIDAS 2.0 and its implications for digital identity management continue to evolve, businesses and individuals must stay informed about the latest legal developments. Don't hesitate to contact us to learn about eIDAS 2.0 and how it may affect you or your organization. Our team of experts is dedicated to providing up-to-date information and guidance on emerging legal regulations, ensuring that you remain well-prepared to navigate the ever-changing digital landscape. Reach out to us today, and let's explore how we can help you stay ahead in this dynamic environment. DISCLAIMER: The information provided is not legal, tax, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. The information provided is for general educational purposes only and is not investment advice. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information. A professional should review any action based on the information discussed. The author is not liable for any loss from acting on the information discussed.