MiCA Regulations Will Propel The Rise Of E-Money Tokens — Here's Why

As regulatory compliance becomes a norm in the crypto space, e-money tokens (EMTs) from legitimate issuers that pass all regulatory checks, will drive innovation and propel adoption in the crypto space. 

What are E-Money Tokens (EMTs)?

MiCA, a framework for the regulation of crypto-assets and related activities within the EU member states, classifies crypto assets into 3 broad categories – Asset-Reference Tokens (ARTs), E-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 like gold, stocks and debt instruments, and even other crypto assets.  For example, Circle's USDC is an ART which works as a regulated digital currency and can be redeemed 1:1 for US dollars. The USDC is backed by both cash and cash equivalents like short-dated US treasuries, etc.

EMTs, on the other hand, maintain a stable value by being backed by only cash, and not cash equivalents, in a 1:1 ratio. The cash is stored with a regulated custody solutions provider. For example, 1 eEUR (EMT) is equal to 1 Euro (fiat). Holders of EMTs must be able to redeem them at par, meaning that EMTs must be convertible into fiat currency at their face value.

Furthermore, issuers of EMTs are mandated to follow regulations set by national authorities, which includes compliance with applicable anti-money laundering (AML) and counter-terrorism financing (CTF) protocols. 

How Are MiCA Regulations Changing the Crypto Landscape

The emergence of MiCA regulations is expected to have a substantial impact on the stablecoins market, which is presently valued at over $160 billion. MiCA directives mandate that only entities authorized by one of the EU’s national financial regulators can issue stablecoins. Authorized stablecoins issuers must adhere to compliance obligations, including anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. 

CASPs with over 10 million active users will be classified as "Significant CASPs". Significant CASPs will not only be monitored by relevant national authorities, the European Securities and Markets Authority (ESMA) will also have "intervention power" to influence their operations. Thus, CASPs offering services related to stablecoins will have to ensure regulatory compliance to maintain operational efficiency and mitigate the risk of conflict with authorities. 

Why E-Money Tokens(EMTs) Are Poised to Win

In the ever-changing crypto landscape, E-Money tokens have the potential to emerge as game-changers. 

The concept of EMTs is akin to digital fiat currency in the financial sector, which gives them an edge over ARTs and other crypto-assets, which are relatively newer, more complex and in their early stages of development. Moreover, when evaluating EMTs and ARTs in terms of market readiness, the complexity of ARTs subjects them to stricter regulatory requirements than EMTs.

EMTs are backed by fiat currency that is legal tender and have a defined legal status under EU law. Holders of EMTs have rights to redemption, and issuers of EMTs must implement robust measures to safeguard users' funds against systemic risk and fraud. This endows EMTs with wide-ranging utility and also lends greater legitimacy to them among users, thus boosting their adoption. 

If operating within the EU, EMTs must be pegged to an EU currency, otherwise, they will be limited to not 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 eEUR to potentially become the base trading pair in crypto markets.

A few major blockchain projects have already started taking steps towards becoming MiCA compliant. E Money Network, a modular RWA protocol that acts as an L1 blockchain for dApps, is ensuring MiCA compliance on-chain 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 for providing MiCA-compliant storage and custody solutions. E 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 for providing secure and user-friendly infrastructure for storing, accessing and utilizing EMTs.

This post was authored by an external contributor and does not represent Benzinga’s opinions and has not been edited for content. This contains sponsored content and is for informational purposes only and not intended to be investing advice. Cryptocurrency is a volatile market; do your independent research and only invest what you can afford to lose. New token launches and small market capitalization coins are inherently more risky than large cap cryptocurrencies. These tokens are subject to larger liquidity and market risks.