Last week, the European Commission launched a long-awaited consultation on the functioning of the EU regulatory framework for crypto-assets under the Markets in Crypto-Assets (MiCA) Regulation. Aimed at gathering views from industry stakeholders, policymakers, consultants, and investors, the consultation marks a first step toward a potential recalibration of the MiCA framework, commonly referred to in the industry as MiCA 2.0.
The Commission has focused on a number of pressing matters for the crypto industry, ranging from the suitability and functioning of existing MiCA requirements and their scope of application, to the suitability of the existing EU's approach to areas of the crypto industry that currently fall outside the MiCA-framework.
Below is a summary of and observations on selected questions raised in the consultation.
1. Scope
Financial instruments vs. crypto-assets
The MiCA-Regulation has introduced a clear taxonomy of crypto-assets by establishing two categories of regulated stablecoins and one catch-all category for other crypto-assets that are not explicitly excluded from the MiCA-framework for instance due to their qualification as regulated instruments under other sector specific legislation such as financial instruments under the MiFID II framework. This point of differentiation was intended to create a clear boundary between the securities and crypto-markets in the EU by applying a technology-neutral approach i.e. meaning that even instruments issued and traded via DLT that grant their holders rights equivalent to a share in a company, bond or a financial derivative contract, are to be deemed as financial instruments in their traditional sense, rather than MiCA crypto-assets.
In practice however, it can sometimes be particularly challenging to draw a clear line between the two worlds, for instance, when it comes to differentiating between some real-world asset backed crypto-assets (like asset-referenced tokens) and derivative instruments (albeit one could still argue that there are some clear points of differentiation). Nonetheless, against this backdrop, the Commission is looking to get the feedback on whether crypto-assets that qualify as financial instruments shall continue being regulated under the securities issuance and trading regulations based on the MiFID II, MiFIR and Prospectus framework or whether all assets recorded and transacted via DLT shall be regulated under the MiCA-Regulation?
Whilst additional clarity on the boundary between financial instruments and certain crypto-assets may be welcome, recalibrating the regulatory framework in a way that would put focus on the technology of issuance rather than the economic substance and purpose of the instrument at hand, would be a wrong approach: one that would diverge in all its aspects from the core principles underpinning financial regulatory policy in the EU.
Approach to EU access for non-EU CASPs
Under the MiCA-framework, access to EU clients for non-EU providers of crypto-asset related services is heavily restricted. The narrow corridor called reverse solicitation exemption the application of which is subject to compliance with strict ESMA guidance on the topic, is hardly a suitable long term market entry strategy for any non-EU entity. This restricted framework has some side effects primarily when it comes to EU client’s access to non-EU liquidity pools for crypto-assets that may well lie beyond the EU borders. In essence, EU entities of large global platforms, that have a license as crypto-asset service providers (CASPs) under MiCA, typically hold a fraction of the group's total assets and order book depth. Consequently, EU clients contracting with the EU CASP, get a structurally thinner market access relative to their non-EU peer using the same group's offshore platform.
Conscious of this challenge, the Commission is questioning whether MiCA provisions regulating CASP activities sufficiently allow, or unduly restrict, access for EU clients to non‑EU and global crypto asset trading and liquidity pools?
The Commission appears to be inspired by the approach taken by the UK Financial Conduct Authority (FCA), that is currently considering establishing a leaner framework, that might allow global players to enter the UK market based on a two-tiered structure: with the UK subsidiary acting as the contracting entity and the service provider of record for the UK clients and the UK branch of an oversees entity, via which UK clients can get access to global liquidity pools of the crypto-company in question. It remains to be seen however whether the Commission will be ready to go this far in order to enable EU clients easier access to global liquidity pools.
2. Stablecoins
Arguably the most consequential and most closely watched area of the consultation is around stablecoins. By looking to provide some food for thought to the industry that was eagerly waiting to see the areas of the stablecoin sector that the Commission will focus on, the Commission has raised several important questions, amongst other, in the following areas:
Multi-issuance schemes
The question of permissibility of multi-issuance structures under the MiCA-Regulation, was subject of a heavy debate between market participants, national competent authorities, industry associations and EU bodies (incl. the ECB and the ESRB).
In essence, multi issuance schemes refer to stablecoins issued by several entities located in different jurisdictions (e.g. one in the EU one in the UK) which are designed to be: (i) issued with the goal to be made available to users in different jurisdictions, and, (ii) fungible , meaning so that users based in different jurisdictions can treat them as identical regardless of which entity has issued them. Under the multi-issuance arrangement, each issuing entity holds reserves backing the tokens that it has issued, but, where one entity faces a redemption request that exceeds its available reserves, the arrangement predicts a rebalancing mechanism whereby the other issuing entity/entities can transfer assets to ensure adequate backing across the entire token supply. The ECB has in particular expressed concerns when it comes to multi-issuance schemes by putting focus on risks that EU customers may be exposed to, monetary sovereignty and financial stability related risks as well as a potential supervisory ambiguity in this space (having the EU regulators supervising in part activities that are being carried out across third-countries).
Whilst Recital 54 MiCA-Regulation, which clearly requires issuers of asset-referenced tokens (ARTs) to ensure ring-fencing of reserved assets for the EU part of their token issuance, arguably provides a basis for multi-issuance structures for ARTs, many have long argued that this does not apply to EMTs. Some have went as far as claiming that this sentence cannot be used as a legal basis for multi-issuance structures altogether.
To the surprise of some, the Commission has for the first time in the consultation acknowledged that multi-issuance structures under MiCA-Regulation are permitted for all stablecoins. However, the Commission is looking to get responses to (amongst other) the following questions:
- Should MiCA-Regulation continue to be open to multi-issuance models?
- Should existing safeguards (primarily reserve asset and ring-fencing requirements) continue to apply to multi-issuance models?
Euro-backed stablecoins
E-money tokens (EMTs) pegged to or denominated in an EU currency (incl. the euro), are currently automatically subject to MiCA-Regulation, regardless of where the issuer is based and whether EMTs in question are actually offered to EU customers. This protective regime was introduced with intention to prevent issuers based in non-EU countries from issuing euro denominated stablecoins that might be used by EU customers as a means of payment while staying outside the scope of the MiCA-framework.
However, the hard truth is that (because of this or totally regardless of this restriction) euro-denominated stablecoins currently represent a fraction of total volume of stablecoins in circulation globally. This raises an important question: whether the existing strict regime carries the unintended consequence of suppressing the euro’s potential to establish itself as a meaningful reserve currency for fiat-backed stablecoins at a global scale. This is a particularly timely matter given that key jurisdictions around the world are now developing their own stablecoin regulatory frameworks, under which issuers may well have a genuine commercial interest in issuing euro-denominated stablecoins for international use outside the EU.
Against this backdrop, the Commission is questioning whether the existing default treatment of all euro denominated stablecoins as EMTs under the MiCA-framework is a right approach and whether in its current shape and form discourages the international role and use of the euro as a reserve currency.
Access to non-EU stablecoins
Currently, EU crypto-exchanges are prohibited from listing stablecoins that are not compliant with the MiCA framework. This wide-ranging ban has significant practical consequences given that some globally dominant stablecoins, including the world's largest stablecoin by market capitalisation Tether (USDT), are not MiCA-compliant and consequently effectively not available on regulated EU crypto-exchanges.
Conscious of the market access implications of this restriction for EU users, the Commission is now questioning how important access to global stablecoins is for EU clients and whether the existing blanket ban may be disproportionate. This signals that the Commission might be ready to consider recalibrating the existing regime by potentially introducing a more nuanced framework that distinguishes between stablecoins issued in jurisdictions with comparable regulatory frameworks (more on this below) and those operating entirely outside any regulated perimeter.
Equivalence regime
Under the MiCA framework, issuers of both EMTs and ARTs effectively need to be EU based entities that have necessary authorisation under the MiCA-Regulation (in the case of EMTs, have existing authorisation as e-money or credit institutions under the applicable EU law). There is also no equivalence regime for stablecoin issuers based in third-country jurisdictions, not even those with regulatory frameworks on stablecoins. Consequently, any issuer wishing to offer stablecoins to EU clients or have their stablecoins listed on EU exchanges must have EU presence and ensure compliance with the MiCA-Regulation.
Given that MiCA is by far the first comprehensive regulatory framework on crypto-assets globally, this approach was arguably proportionate a few years ago when MiCA was in the making. However in the meantime, some key jurisdictions around the world have in the meantime started developing their own comprehensive regulatory frameworks for stablecoins, most notably the US following the enactment of the GENIUS Act and the UK under its evolving crypto regulatory framework. Against this backdrop, and as a direct reaction to this global regulatory development, the Commission is now raising the high-level question of whether an equivalence regime for stablecoin issuers would be worth introducing?
From a practical standpoint this could be a game changer, especially if we focus on some areas of the stablecoin industry that would highly benefit from the creation of some equivalence regime: First, multi-issuance structures involving EU and non-EU co-issuers could rely on a solid legislative basis built on comparable rules and mutual recognition across key jurisdictions. Second, stablecoins issued in third-country jurisdictions with a comparable framework could become eligible for listing on EU exchanges which would open up access for EU customers to a significantly broader range of globally circulating stablecoins that are currently black-listed under the MiCA-framework.
3. DeFi
The MiCA-framework does not apply to crypto-asset related services provided “in a fully decentralised manner” without any intermediaries acting in between. This sentence from Recital 22 of the MiCA-Regulation has been the main safe harbour that many firms operating in the DeFi space have been relying on since the MiCA go live date. However, in practice the question whether a platform indeed operates “in a fully decentralised manner” is much harder to answer with legal practitioners and regulators focusing on various factors that may speak in favour or against the conclusion that any person is effectively controlling the platform.
With this in mind, the Commission is looking to get feedback on various factors that could speak in favour of someone effectively running a DeFi platform, including the degree of control exercised over the underlying protocol or smart contracts (e.g. via admin keys), the concentration of governance power over key functionalities, custody of user assets or marketing of the DeFi platform done by an identifiable person.
Further, many EU CASPs provide their clients with a direct access to DeFi platforms. Since these platforms are generally deemed as exempted from the MiCA-Regulation, the Commission is asking whether CASPs should meet their fiduciary duty vis-à-vis clients by conducting due diligence over DeFi platforms that they make accessible to their clients. To that end, the Commission appears to be ready to explore different approaches incl. some that might only permit CASPs to connect their clients with DeFi platforms that are certified (under some new certification regime).
4. Prediction markets
The unprecedented surge in popularity of prediction markets in the US has reached EU shores in recent months, which has prompted the Commission to raise a high-level question as to whether prediction market platforms present opportunities or risks for EU consumers and investors.
As explained in more detail in our previous article, prediction markets remain one very complex regulatory area in the EU where unlike in the US, where the CFTC (still) holds a firm grasp over the prediction markets industry, the regulatory landscape is much less clear: whilst some event contracts may constitute financial instruments regulated under the MiFID II framework, most commonly either in form of contracts-for-differences (CFDs) or binary options, others (usually those referring to non-financial underlying events like sports games and political events) fall under the scope of fragmented gambling regulatory landscape which is largely based on national laws of 27 EU Member States.
If one adds to this regulatory ambiguity the fact that some prediction markets platforms are in whole or in part DLT-based infrastructures, the picture becomes even more blurred since a legitimate question that can be asked is: whether and to what extent MiCA-Regulation applies to such platforms?
With this in mind, the Commission has asked whether the prediction markets, where they are DLT enabled and facilitated through smart contracts shall be governed by MiFID or MiCA? However, intentionally or negligently, the framing of this question is in itself rather misleading.
The EU has traditionally applied a substance-over-form and technology-neutral approach according to which the question of which regulatory framework applies cannot be answered at the platform level but depends entirely on the nature of the individual event contracts at hand. Event contracts that meet criteria to be deemed as CFDs, binary options, or any other financial instrument for that matter, shall be treated as such under MiFID II. On the other hand, those that exclusively qualify as crypto-assets shall fall under MiCA. Nonetheless, where MiCA can come into play is at the infrastructure layer where crypto-assets are used as a means of payment or exchange between participants (though this typically sits a layer below the event contracts themselves traded on the platform). One can therefore hardly say that a prediction market platform in its entirety falls under one framework or another. Instead, depending on the event contracts available on the platform, and means of exchange and payment accepted by the platform operator at the infrastructure layer, a platform operator can easily become subject to requirements stipulated under different, sometimes conflicting regulatory frameworks: ranging from MiFID II over gambling to MiCA regulatory framework.
5. Staking, lending & borrowing
Aside from DeFi, there are some further corners of the crypto-industry that are not directly regulated under MiCA. These include lending and borrowing of crypto-assets, which in itself is not deemed as a regulated crypto-asset related service under MiCA. The same goes for staking which, unless provided in a way that amounts to custody and administration of crypto-assets on behalf of clients, falls outside the scope of the MiCA framework. This was confirmed by ESMA, which has clarified that where a staking service provider holds the client's crypto-assets or their private keys in the course of providing staking services, such activity is ancillary to custody services and therefore requires a CASP authorisation. On the other hand, pure staking arrangements that do not involve the transfer of custody remain unregulated under the existing framework.
The Commission is now asking whether the current approach to staking, lending and borrowing remains adequate, or whether these activities require different regulatory treatment amid the growth of the crypto-sector over the last few years. In the case of staking, the specific question is whether the existing ancillary treatment under the custody provisions of MiCA is sufficient or whether staking services should be subject to standalone requirements tailored to their specific risk profile. On lending and borrowing, the Commission is asking whether these activities shall be regulated at all and if so, what the main elements of such a framework should look like.
6. Next steps
The consultation window is open until 31 August 2026, and responses can be submitted through the Commission‘s online questionnaire. After the consultation closes, the Commission is expected to analyse industry feedback and publish a summary before proceeding to drafting any legislative proposals that may lead to recalibration or less likely full revision of the MiCA-Regulation.
Timing wise, it’s important to emphasize that under Art. 140 MiCA-Regulation, the Commission is required to present the report on the application of the MiCA-framework, accompanied where appropriate by a legislative proposal by 30 June 2027. However, any legislative proposal coming as a result of this consultation would need to go through the ordinary EU legislative making process.
Given the level of complexity of the points raised in the consultation as well as the usual pace at which the EU legislative process moves, even if the Commission manages to publish draft legislative proposal by the aforementioned deadline, it is hardly expectable that any concrete legislative proposals will be adopted before 2028.
