Tokenized Securities Unaffected by MiCA, Utility Tokens and Stablecoins Face Stricter Rules

As the EU’s Markets in Crypto Assets (MiCA) regulation is set to partially become applicable on 30th June 2024, it is crucial to understand its implications for various types of crypto-assets. While tokenized securities remain largely unaffected by MiCA, utility tokens and stablecoins will face significantly stricter regulatory requirements.

MiCA introduces comprehensive measures to regulate the crypto-asset market, providing much-needed clarity. However, it’s important to note that MiCA does not apply to crypto-assets qualifying as financial instruments, such as transferable securities. These assets continue to fall under the existing regulatory framework of MiFID II (Markets in Financial Instruments Directive II). This provides clear guidance to securities’ issuers.

In contrast, MiCA imposes significant new requirements on utility tokens and stablecoins, fundamentally changing how these assets can be issued and managed. Most cash equivalent tokens currently use the ERC-20 token standard, which lacks owner identification capabilities. Under MiCA, issuers might need to consider a transition to the ERC-3643 token standard to issue permissioned tokens, enabling the necessary compliance features such as owner identification and additional controls.

In addition, providers of services linked to crypto-assets may have to obtain a Crypto-Asset Service Provider (CASP) license. Obtaining such a license would involve considerable financial and time investments. To some extent, the complexity and costly legal processes could make issuing security tokens easier than issuing utility tokens and stablecoins under MiCA.

Despite these challenges, the stricter but clear regulations present opportunities for large institutions such as banks to tokenize cash, providing institutionally acceptable money onchain, which is missing today. They are likely to issue permissioned cash coins to enforce compliance, as we discussed in the previous newsletter “Institutional RWA Tokenization Needs Permissioned Cash Coins”.

At Tokeny, we are well-positioned to leverage these opportunities. Our technology enables both payment coins and securities issuers to identify token holders, track ownership, and enforce automated compliance onchain, which is increasingly crucial as regulations tighten.

This is a historic moment for Europe to position itself as the hub of institutional tokenization, we are excited for what’s coming!

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