Unlike many of my cryptocurrency contemporaries, I have long been a proponent of regulation. It may not mesh with the libertarian principles underlying the movement, but we need to be pragmatic. To successfully realize a decentralized vision, perfection cannot be the enemy of goodness. Compromise is essential to living in harmony with the statutory financial system. A big part of it is following the right kind of regulation.
However, to date, many of the proposed compliance inappropriate, unrealistic or staggering excesses of authority. The main problem is that regulators are taking a peer-to-peer approach, and lawmakers have been grappling with governance, especially in the United States. Rather than working with the crypto industry, there are concerted efforts to force us into existing regulatory frameworks that simply do not apply.
of the European Union Marketplace for the Crypto Asset Framework (MiCA) it’s different. For the first time, it feels like a perfect example of a government regulator working with industry to create a set of laws that provide a mutually beneficial pathway.
In late September, the full text of the MiCA framework was leaked online. At over 1,000 pages long, it sets a landmark European crypto licensing regulation likely to come into force in 2024.
The original draft of MiCA had some extreme proposals that were highly disruptive to the cryptocurrency industry.Clauses such as requiring “know your customer” for everything Non-fungible token (NFT) Marketplace, Banned decentralized finance Crashing (DeFi) and Bitcoin Prices kill proof of workThankfully, a better, more sensible mind prevailed. According to reports, more extreme policies are not included in the final draft. There are several reasons.
1. Kick out the cowboys
Although the crypto movement has noble intentions, the industry has been plagued by nefarious activities that have severely damaged its reputation, and we have seen investors lose millions of dollars to scammers and scammers.
The 2017 era was full of projects that published white papers and raised millions of dollars in investment capital through initial coin offerings (ICOs), but they disappeared with the money. While this may not be the case for all projects, implementing strict regulations on ICOs and product launches can effectively wipe out “exit fraud”. By requiring detailed white papers and holding authors accountable for delivery and timelines, only legitimate projects see the light of day.
The essence of regulation is about consumer protection. It is therefore encouraging that Europe will adopt a balanced approach to tackling scammers head-on, while allowing people the freedom to decide how much exposure they want to have in the industry.
2. Clarification of roles
Sometimes it feels like the government is trying to regulate the existence of the industry. In the United States, there have been attempts to pass legislation that essentially groups everyone involved in the purchase and promotion of cryptocurrency services with exchanges that sell cryptocurrencies. Doing so would have imposed impossible demands on the average crypto user and likely closed the door to many services.
MiCA recognizes the differences between the parties participating in the industry and articulates how regulators should view them. This depiction is exemplified in their understanding and the resulting definition of emissions (or block subsidies, sometimes referred to as block subsidies). They acknowledge that those who get paid for staking get paid through their work.
The definition of MiCA is that consensus-generated emissions (rewards for staking/mining) are protected as income rather than dividends on investments, making truly decentralized cryptoassets the foundation on which they are built. It means ensuring that you remain protected by your philosophy.
3. DeFi Provider Protection
Under MiCA, DeFi platform providers may also breathe a sigh of relief. There have been attempts to hold them accountable for all activity on their network, which is to make the internet service his provider responsible for everything the user does on the internet. It’s just as unfair.
Certainly, there must be clear compliance to protect users and ensure that fraudsters and others are limited in what they can do on the network. This is exactly the approach MiCA seems to take.
The MiCA framework appears to offer full protection for DeFi providers. If something is truly decentralized, the people who created the protocol are not responsible for everything on the network.
4. NFT is still a gray area
Some confusion remains regarding how to define a non-fungible token (NFT). As a result, MiCA is not 100% clear on how to handle them. On the one hand it is accepted that they are tokens, on the other hand they do not work in the same way as cryptocurrencies. Ultimately it will be necessary to create new categories not currently covered by the European framework.
I need to clear up this mess. Large non-cryptocurrency brands will be an important vector for drawing users into space, and NFTs will be an important vehicle for doing so. But only if it’s clear what you can and can’t do.
From a broader perspective, it is also important to clarify how non-crypto companies work with the crypto industry. There are huge partnership opportunities, and precise regulation will allow us to mine these opportunities as much as possible.
5. Stablecoins, Sovereignty and National Security
As you might imagine, MiCA is not without protectionist policies. Its creators understand that stablecoins can pose significant risks to national currencies. European lawmakers don’t seem to want to get rid of them, but they clearly want to ensure that stablecoin issuers continue to use state-controlled assets to secure their backing.
The framework focuses on allowing stablecoins to be tied to sovereign debt or an auditable basket of euros. As long as it’s symbiotically tied to their currency, they’re fine with it.
But things like Dai (algorithmic stablecoins backed solely by other cryptocurrencies) can be a problem. Because we are moving into a world with challenger currencies that may become more useful and eliminate the sovereignty of fiat currencies.
Ultimately, looking at the various regulatory frameworks of developed countries, it is clear that governments are seeking approaches that they believe will protect their sovereignty and economy. Unfortunately, in the US, this means a heavy-handed approach that goes too far and fails to regulate according to technology. The good news, however, is that Europe is taking a more pragmatic and holistic approach, allowing the crypto industry to gain momentum.