As the rest of the cryptocurrency market gradually moves on from the aftermath of the collapse of Terra’s LUNA and UST, regulators across the globe have become increasingly skeptical of digital assets and the risks they pose to investors.
On 30 June, the European Commission, lawmakers within the European Union (EU), and member states reached an agreement on the body of laws to regulate player activities in the cryptocurrency market.
Referred to as Markets in Crypto-Assets (MiCA), the proposed legislation is “aimed at issuers of unbacked crypto-assets, and so-called ‘stablecoins,’ as well as the trading venues and the wallets where crypto-assets are held.”
According to the announcement blog by the Council of the EU,
“Regulatory framework will protect investors and preserve financial stability while allowing innovation and fostering the attractiveness of the crypto-asset sector. This will bring more clarity in the European Union, as some member states already have national legislation for crypto-assets, but so far, there had been no specific regulatory framework at EU level.”
According to the announcement blog, the proposed MiCA is targeted at protecting consumers. The laws aim to protect consumers “against some of the risks associated with the investment in crypto-assets, and help them avoid fraudulent schemes.” Placing an onerous duty on crypto-asset service providers, with MiCA, centralized and decentralized exchanges, DeFi protocols, crypto lending platforms, and other service providers “become liable in case they lose investors’ crypto-assets.”
According to the Council of the EU, the proposed MiCA will also correct the environmental issues related to crypto mining activities. The legislation will require players within the crypto ecosystem to “declare information on their environmental and climate footprint.”
In addition, the European Securities and Markets Authority (ESMA) will “develop draft regulatory technical standards on the content, methodologies, and presentation of information related to principal adverse environmental and climate-related impact.”
Further, within the next two years, the European Commission will publish a report on the environmental impact of crypto-assets. With this report, the Commission will introduce “mandatory minimum sustainability standards for consensus mechanisms, including the proof-of-work.”
The not-so “stable”coins
While noting the recent events that have plagued the stablecoins market, the Council stated that the risks posed to holders of these categories of assets are heightened without a regulatory framework.
With the proposed MiCA, issuers of stablecoins will be required to build a sufficient liquid reserve with a 1/1 ratio and partly in deposit. Holders of stablecoins will be offered a claim at any time and free of charge by the issuer. For increased regulatory oversight, the proposed MiCA will ensure stablecoins are brought under the purview of the European Banking Authority (EBA). Before an issuer can operate, it must be present within the EU.