The start of 2025 brings the crypto industry to a critical juncture. The United States, under the second Trump administration, is expected to make a pivot on its crypto policy. And across the Atlantic, the European Regulation on Markets in Crypto Assets (MiCA), the most comprehensive and ambitious legislation for virtual assets to date, became fully applicable.
MiCA: Regulating Crypto in the EU
A quick recap: MiCA’s first implementation date, June 30, 2024, applied to stablecoins (referred to as “Asset Reference Tokens” or “E-Money Tokens” under the MiCA-speak). Its second and final implementation date, December 30, 2024, brought all other regulated tokens and coins, as well as to crypto assets service providers (CASPs), under its purview.
A lot has been written and said about the requirements imposed by MiCA: First and foremost, for issuers of stablecoins and other currencies and for centralized service providers falling under the definition of CASPs – exchanges, custodians, trading platforms, wallets, and other intermediaries acting on behalf of customers – which are to become supervised entities.
Indeed, based on our experience and insights from industry participants, firms that qualify or may qualify as CASPs are generally aware of the impact that MiCA on their activities. As a result, many have sought legal advice or already pursued authorisation in one or more EU member states.
🔎 INSIGHT: What is the Markets in Crypto-Assets (MiCA)?
MiCA was introduced to address regulatory inconsistency, rising fraud and potential risks to financial stability, aiming to create a level playing field and safeguard consumers. pic.twitter.com/fB2uztr1cE
— Cointelegraph (@Cointelegraph) December 17, 2024
Regulations Beyond the Regulated Entities
In contrast, less attention has been focused on MiCA’s potential implications for other ecosystem participants: technical vendors, infrastructure developers, DeFi platforms, marketing and PR companies, investors, and day traders. While not explicitly falling within the supervisory perimeter, the new regulatory standards posed by MiCA could significantly impact the operations of these players.
To understand this, we must consider the diffusive nature of new regulations. When a government imposes a statutory obligation, it not only affects the directly regulated entities but also ripples through the ecosystem. Entities that do business with the regulated entities (second-order entities) and those that interact with these second-order entities (third-order entities) and so on are also impacted. This evolving dynamic results in a broader distribution of the regulatory burden, extending, at least partially, to non-regulated players.
Some provisions of MiCA establish a de facto ‘pass-on’ mechanism from regulated entities to non-regulated ones. CASPs and token issuers are specifically required to manage and monitor their relationships with third-party providers, ensuring that their vendors, suppliers, and partners do not compromise their regulatory standing.
If you are a software vendor specializing in blockchain and digital assets, understanding and addressing these requirements is crucial to maintaining compliance and protecting your business. Otherwise, your European regulated clients may refrain from using your services.
For instance, consider an infrastructure platform that enables exchanges and custodians to handle client funds and crypto assets. Even if the platform itself may not qualify as a CASP, its provision of services to regulated entities places it within the MiCA regulatory nexus.
To stay ahead, software providers must ensure their technology is ‘regulation-grade’ and helps customers meet their compliance obligations, including operational resilience, cyber and data protection, business continuity, AML/CFT, and cooperation with authorities.
Some service providers have even returned their products and terms back to the sketching board in order to adhere with the new regulations. Vendors with a dominant market position may even be designated as “critical” under MiCA’s sister regulation, the Digital Operational Resilience Act (DORA), triggering additional obligations.
Breaking news: Major shift in the EU stablecoin market starting Dec. 30! 🚨
MiCA regulations fully take effect, excluding USDT. Circle’s USDC and EURC gain an edge as they meet licensing and reserve requirements.
⚫ Binance and OKX delist USDT in compliance, while EURC…
— Andres Meneses (@andreswifitv) December 22, 2024
Market Manipulation and Insider Trading Prohibitions Will Cover Many
But the implications of MiCA go beyond that. The legislation includes general rules and prohibitions applicable directly to all industry participants, including the market abuse provisions in Title VI, which prohibit market manipulation and insider trading. These regulations may have far-reaching consequences for DeFi traders, validators, MEV relays or crypto news outlets, and even for more traditional players like corporate entities, institutional investors, and consultants.
Anyone with access to inside information should carefully evaluate their activities and take necessary measures to mitigate potential violations.
All that doesn’t mean that MiCA treats non-regulated firms the same way as the regulated ones. The bulk of regulatory overload would still lie with entities having direct relationships with customers, i.e., token issuers and CASPs. However, a regulatory framework so vast such as MiCA (which may be followed soon, in one way or another, in the US) would have reverberations which would be felt across the industry. To thrive in this landscape, the technology builders and designers must ensure that their solutions align with the evolving regulatory standards.
