MiCA Implementation: Off to the Races

Earlier this month, the SDF Policy team kicked off summer the best way it knows how, with a whirlwind trip to Brussels and Paris to meet with stakeholders in key EU institutions to talk about blockchain policy developments. And our timing could not have been better – during the trip, EU authorities published the landmark Markets in Crypto-Assets (MiCA) regulation in the EU’s official journal. This groundbreaking piece of legislation aims to make the EU a global hub for digital assets by laying out clear rules for industry, investors, and consumers alike. With MiCA now in place, the conversations we had with EU policymakers, regulators, and lawmakers focused on the technical aspects of the law’s implementation, and what to expect in the coming months.

There is a clear understanding among stakeholders in the EU that even after setting forth the world’s most comprehensive rules on crypto, in many ways the hardest part has only just begun. European supervisory authorities and the European Commission must now get to work on secondary legislation, known as “Level 2” legislation, that lays out technical and operational details for key provisions in the law. Ultimately, the practical success of MiCA depends on the standards that are created during this stage – and how those standards are communicated to market participants. The clock is already ticking: MiCA’s stablecoin provisions will take effect in 12 months, and all other provisions will come into force in 18 months.

And while MiCA creates an important framework for digital assets, some of the greatest challenges ahead stem from what didn’t make it into the legislation. For instance, MiCA does not apply to crypto services provided in a “fully decentralized manner.” However, the law provides no definition for what “fully decentralized” means. Nearly three years after the European Commission introduced MiCA, policymakers there are still grappling with what decentralization looks like in practice, and what dimensions to consider when evaluating the degree of decentralization of a blockchain network or project. The SDF Policy team looks forward to staying closely engaged in this process to help inform the development of a practical evaluation framework, and to reinforce that decentralization is a spectrum rather than a binary choice between decentralized and centralized.

As we enter MiCA’s implementation phase, we appreciate that EU stakeholders are actively seeking feedback from industry on the practical implications of MiCA and on how best to fill in MiCA’s gaps. This dialogue is building trust with industry and – hopefully – laying the foundation for continued innovation in Europe.