The EU’s MiCA Law Creates A Better Environment For DeFi

Cryptocurrencies have been headlining news over the past few months, given the recent volatility experienced in the market. This volatility has added fuel to the fire for those calling for action against cryptocurrencies (mostly from political corners which vested interests in legacy financial institutions & the fiat system). Despite their wishes, banning DeFi assets is neither possible nor an answer. Regulation should exist – for crypto-assets to take their rightful place in the wider market, they need to become subject to some of the same controls that legacy financial assets have been subject to for decades. However, it needs to be done intelligently, with the participation of the industry, while not killing the unique aspects of DeFi that make it so attractive in the first place and focusing mainly in consumer protection.

One good example for a new set of regulations is the recent Markets in Crypto-assets (MiCA) Law of the European Union, expected to come into effect in late 2023. In a nutshell, the legislation covers issuers of unbacked crypto-assets, stablecoins, as well as the trading venues and the wallets where crypto-assets are held. The rules are focused on consumer and investor protection – issuers become liable in case they lose investors’ crypto-assets. For instance, it requires issuers to keep proper reserves for stablecoins, to meet redemption requests in the event of mass withdrawals.

MiCA is an extremely positive set of rules for the industry. It addresses risks to financial stability and monetary policy that could result from a unregulated use of crypto-assets in financial markets. It also ensures a high level of investor and consumer protection and market integrity in this sector. The MiCA also includes steps to combat market manipulation, as well as to stop money laundering and other illegal activity. In sum, it promotes a healthier market for cryptocurrency, without tempering with the main aspects of DeFi.

With this information in mind, it becomes clear that EU lawmakers are starting to set the pace for the rest of the world when it comes to financial crimes and crypto compliance, compared to the slower approach currently being employed by the Biden administration in DC. It goes without saying that the US will be looking at the new EU regulations, possible spill-over effects and the results of the new law when considering their own future moves. The European Commission’s Mairead McGuinness is even openly calling for U.S. cooperation on crypto regulation in a joint framework.

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