In a previous article, I talked aboutMICAthe regulatory framework of the European Union that causes a paradigm shift for Binance. Today, I look at a more controversial aspect of MiCA: its potential brake on innovation. Although MiCA presents itself as a protective shield for savers and a market stabilizer, many voices are raised to denounce its restrictive effects on technological and economic development. In this article, I give you my arguments against MICA which is in my opinion a major obstacle to innovation in the cryptocurrency sector.
Too restrictive a framework?
MiCA imposes a series of onerous constraints on cryptocurrency companies, including transparency, data protection, and compliance with anti-money laundering standards. While these measures aim to protect users, they risk creating an overly restrictive environment for start-ups and innovators in the sector.
An Obstacle for Startups
Article 14 of MiCA stipulates that all companies providing services related to cryptocurrencies must obtain authorisation from the competent national authorities. Authorisation criteria include requirements for minimum capital, IT security, and internal governance.
The cost of complying with MiCA could be prohibitive for smaller companies, reducing the diversity of players in the market and concentrating power in the hands of a few large companies that can bear these burdens. This centralization runs counter to the decentralized spirit of blockchain and cryptocurrencies.
This situation risks concentrating power in the hands of a few large companies, reducing competition and innovation. We have seen the departure of some companies from the sector, such as Bybit, which left the European market due to the new regulations imposed by MiCA. In addition, even popular stablecoins like USDT do not comply with the strict requirements of MiCA, despite their capital.
Too Broad Definition of Crypto-Assets
MiCA Article 3 defines cryptoassets extremely broadly, encompassing any digital representation of value or rights that is transferable and stored electronically. This definition could include future innovations not yet envisaged, subjecting them to inadequate regulations.
The European approach to MiCA is reminiscent of that adopted in the early days of the Internet. While the US and other countries opted for light-touch regulation, allowing giants like Google, Amazon, Facebook and others to emerge, Europe chose to focus on regulation and protection. As a result, European companies were overtaken by their American counterparts, and Europe was left behind in the race for digital innovation.
Today, as cryptocurrencies and blockchain technologies are still in their infancy, MiCA could well be repeating this scenario. By seeking to protect too early, Europe risks holding back the rise of revolutionary technologies that could transform financial, industrial and other sectors.
Monitoring and Control of Stablecoins
Article 67 subjects stablecoin issuers to strict oversight, including strict requirements for reserves, transparency, and risk management. Stablecoins, which are cryptoassets backed by fiat currencies, are particularly targeted by MiCA because of their potential impact on financial stability.
While stablecoin oversight is warranted, excessive reserve and transparency requirements could discourage innovators from launching new stablecoins in Europe. This could hamper the development of these assets, which are essential for the adoption of cryptocurrencies in everyday transactions due to their low volatility compared to other cryptocurrencies. The strict MiCA requirements discourage innovators from launching new stablecoins in Europe, reducing the options available to consumers. For example, the fact that USDT, EURT are not compliant with MICA requirements.
Excessive Reporting - A Burden for Innovators
Section 75 imposes strict reporting obligations for all crypto-related transactions, including the disclosure of complex details and the keeping of careful records.
These reporting requirements could prove costly and complex to implement, especially for smaller companies. For example, a decentralized finance (DeFi) platform based in Europe could be required to comply with reporting requirements that are not suited to the decentralized nature of its operations. This could discourage innovators from launching projects in Europe, preferring jurisdictions with more flexible regulations.
It should be noted that traditional financial derivatives, such as options and futures, are not subject to the same strict restrictions as cryptocurrencies, although they are just as volatile and potentially dangerous. Derivatives can result in significant losses for investors, and yet they benefit from a more relaxed regulatory framework.
This regulatory disparity creates an uneven environment where cryptos are subject to more stringent requirements, despite similar risks. This could hamper innovation in the crypto sector and favor traditional financial products, even if they present comparable risks.
The White Paper Requirement - A Barrier to Innovation
Articles 4 and 5 require crypto issuers to publish a detailed white paper before any issuance. This document must describe in depth the characteristics of the project, the associated risks, and the rights of token holders.
Creating a detailed white paper can be a significant financial and administrative burden. For example, a small company developing a token for a specific application might be discouraged from launching its project due to the costs associated with complying with MiCA. This favours larger companies that can afford to comply with these requirements, and thus reduces the diversity of players in the market.
Moreover, in the world of crypto a white paper is not an absolute guarantee many fraudulent projects have white papers. This imposition of rule is in no way a guarantee. It could even turn against serious projects.
For example, the Bitcoin white paper does not comply with MICA requirements; in fact, it lacks several MICA requirements:
details about the transmitter (identity of Satoshi Nakamoto)
the associated risks
investor protection measures
As a result, we have an incredible number of well-known and recognized cryptocurrencies that are not MiCA compliant and yet have ETFs and are recognized worldwide, both at the SEC level in the United States and by other authorities as commodities or in other forms of financial products.
MiCA, while designed to protect consumers and stabilise the market, contains articles that risk stifling innovation and limiting the development of cryptocurrencies in Europe. By seeking to regulate too strictly a rapidly evolving sector, Europe risks missing out on opportunities for wealth creation and falling behind other regions of the world that are taking a more flexible approach.
This article reflects a personal opinion and is not intended to be an absolute truth. I am open to discussion and debate on the issues of MiCA and its potential impact on innovation in Europe. Feel free to share your opinions!
