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MiCA Regulations Will Spur the Rise of E-Money Tokens – Here’s Why
As regulatory compliance becomes a norm in the crypto space, electronic money tokens (EMTs) from legitimate issuers that pass all regulatory checks, will drive innovation and spur adoption in the crypto space.
What are Electronic Money Tokens (EMT)?
Ranks MiCA, a framework for the regulation of crypto-assets and related activities within EU member states Crypto assets into 3 broad categories – Asset Reference Tokens (ARTs), Electronic Money Tokens (EMTs) and other crypto assets. ARTs are crypto assets that maintain a stable value by referencing other assets, including but not limited to fiat currencies, physical commodities such as gold, stocks and debt instruments, and even other crypto assets. For example, USDC by Circle it is an ART that functions as a regulated digital currency and can be redeemed 1:1 with US dollars. USDC is backed by both cash and cash equivalents such as short-dated US Treasuries, etc.
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EMTs, on the other hand, maintain a stable value by being backed only by cash, and not cash equivalents, at a 1:1 ratio. The cash is deposited with a regulated custody solutions provider. For example, 1 eEUR (EMT) is equivalent to 1 Euro (fiat). EMT holders must be able to do this redeem them at parmeaning that EMTs must be convertible into fiat currency at their face value.
Furthermore, EMT issuers are required to follow regulations established by national authorities, which include compliance with applicable anti-money laundering (AML) and counter-terrorist financing (CTF) protocols.
How MiCA regulations are changing the cryptocurrency landscape
The emergence of MiCA regulations is expected to have a substantial impact on the stablecoin market, which is currently valued at over $160 billion. The MiCA directives dictate that only entities authorized by one of the EU’s national financial regulators can issue stablecoins. Authorized stablecoin issuers must comply with compliance obligations, including anti-money laundering (AML) and counter-terrorism (CTF) regulations.
CASP with over 10 million active users will be classified as “Significant CASPs”. Significant CASPs will not only be monitored by relevant national authorities, but the European Securities and Markets Authority (ESMA) will also have “intervention powers” to influence their operations. Therefore, CASPs offering stablecoin-related services will need to ensure regulatory compliance to maintain operational efficiency and mitigate the risk of conflict with authorities.
Why electronic money tokens (EMT) are ready to win
In the ever-evolving crypto landscape, e-money tokens have the potential to emerge as a game changer.
The concept of EMTs is similar to digital fiat currency in the financial sector, which gives them an advantage over ARTs and other crypto-assets, which are relatively newer, more complex, and in the early stages of development. Furthermore, when evaluating EMTs and ARTs for market readiness, the complexity of ARTs subjects them to more stringent regulatory requirements than EMTs.
EMTs are backed by fiat currency which is legal tender and have a defined legal status under EU legislation. EMT holders have a right to redemption, and EMT issuers must implement robust measures to safeguard user funds from systemic risk and fraud. This gives EMTs a wide-ranging utility and also gives them greater legitimacy among users, thus increasing their adoption.
If operating within the EU, EMTs must be pegged to an EU currency, otherwise they will be restricted to no more than 1 million transactions per day. This directive ensures that the euro is not supplanted by any other currency and paves the way for the eEUR to potentially become the base trading pair in the cryptocurrency markets.
Some major blockchain projects have already started taking steps towards MiCA compliance. Electronic money network, a modular RWA protocol that serves as an L1 blockchain for dApps, ensures on-chain MiCA compliance by integrating identity, compliance, ownership, and custody protocols within its infrastructure. The project has also acquired relevant licenses in Europe for issuing e-money tokens and a banking license to provide MiCA compliant storage and custody solutions. And Money Network recently launched its testnet for users and developers.
Conclusion
The rise of e-money tokens in a MiCA-regulated framework will play a crucial role in the transition from Web2 to Web3. This presents a huge opportunity for compliant CASPs to provide a secure and easy-to-use infrastructure for storing, accessing and using EMTs.
This post was written by a freelancer and does not represent Benzinga’s views and has not been edited for content. Contains sponsored content and is for informational purposes only and is not intended as investment advice. Cryptocurrency is a volatile market; do your independent research and only invest what you can afford to lose. Launching new tokens and small market cap coins is inherently riskier than large cap cryptocurrencies. These tokens are subject to increased liquidity and market risks.
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