How to Comply with MiCA: E-money and Asset-Referenced Tokens – Guidance and Legal Insights

The Markets in Crypto-Assets Regulation (MiCA) now applies to the majority of the crypto businesses working with the European Union (EU) market. MiCA is a complex framework and essentially the main EU crypto law that aims to bring clarity and consistency to the regulation of crypto assets across the EU. Among other things, MiCA introduces detailed rules for specific categories of crypto-assets, including asset-referenced tokens (ARTs) and e-money tokens (EMTs).

In this article, associate partner at Aurum, Illia Shenheliia, breaks down the key points of the MiCA that regulate the ARTs and e-money tokens.

This article is the second installment in a series exploring the MiCA and its implications for the crypto industry. The first article, “EU MiCA Regulation: Key Insights Every Crypto Business Needs to Know,” provides a general overview of the regulation. If you are seeking foundational insights into MiCA, we recommend reviewing that article as well.

When Does MiCA Apply to Your Token?

Naturally, any project aiming to issue, offer, or market crypto-assets within the EU must comply with MiCA. In practical terms, this means that if your tokens are or will be made available to EU residents or businesses, MiCA compliance becomes a mandatory requirement.

Listing a token on an EU-licensed exchange is an obvious example of making it available within the EU. Additionally, as clarified by the European Securities and Markets Authority (ESMA), EU-licensed crypto-asset service providers (CASPs) are not authorised to conduct transactions in ARTs or EMTs unless those tokens fully meet MiCA’s requirements. This restriction applies to various activities, including exchange, receipt and transfer of tokens.

Beyond meeting this legal obligation, MiCA can also provide unique benefits for specific kinds of projects. In particular, the MiCA framework may be advantageous for worldwide projects in the following scenarios:

• Seeking to Build Credibility and Trust: MiCA compliance can significantly bolster confidence among users and investors, as it demands transparent operations, robust governance, and adherence to strong user protection standards.
• Ensuring Long-Term Stability: Sustainable development of a project often relies on legal certainty, particularly when raising funds, attracting institutional partners, or conducting cross-border activities in mature markets.
• Benefiting from a Comprehensive Framework: MiCA is notable for its expansive scope, granting access to a large market of potential users and investors. Unlike many other regions, the EU now has a clear legal structure for issuing stablecoins or tokenising tangible assets, currencies, or other crypto-assets, making MiCA a distinct and valuable option for suitable projects.

In the following sections of this article, we will delve into ARTs and e-money tokens, exploring their principal use cases and outlining the key requirements for their launch and offering.

Asset-Referenced Tokens (ARTs) under MiCA

What Are ARTs?

ARTs are crypto-assets that maintain a stable value by referencing one or several assets. These assets can include:

• a basket of fiat currencies (e.g., USD, EUR, GBP),
• commodities (e.g., gold, oil),
• other crypto-assets,
• a combination of different real-world assets, or
• a tailored index representing a group of assets.

The key feature is that the token’s value mirrors (as closely as possible) the value of the underlying asset(s), offering a degree of stability for token holders.

Major ARTs Use Cases

Below we outline certain examples of use cases for the ARTs:

1. Tokenising Real-World Assets: Projects can create ARTs backed by RWA, i.e., tangible assets such as real estate, art, racing horses, jewelries, or other goods and commodities. This could expand liquidity options for investors, who can buy fractional ownership of these assets represented by blockchain tokens.

2. Creating Crypto Indexes: An ART could track the value of a set of crypto-assets (like a “basket index token”). This allows investors to gain diversified exposure through a single token instead of purchasing multiple assets individually.

3. Value Transfer: Because ARTs aim for more stability than purely speculative cryptocurrencies, they are more suitable for peer-to-peer transactions to transfer value from one person to another.

Requirements for Issuers of Asset-Referenced Tokens

Unless you fall under a simplified framework, which is described below, if you plan to issue an ART, you should be aware of the following essential compliance obligations:

1. Obtain Authorisation: The issuer must be established in the EU, and that entity must obtain prior authorisation from the relevant regulatory authority in the jurisdiction where it is formed. This process involves submitting comprehensive disclosures covering governance, risk management, and the mechanisms for maintaining the ART’s value.

2. Publish a White Paper: Issuers must release a write paper or public document describing:

• The token’s underlying assets or basket of assets,
• The mechanism to stabilise or maintain the token’s value,
• Rights granted to holders,
• Risks involved, and
• The token’s governance framework (e.g., how changes to the basket’s composition are decided).

3. Meet Ongoing Compliance Obligations:

Issuers must also comply with ongoing compliance obligations, such as:

• Maintaining reserve assets in secure, low-risk investments (in line with regulatory standards),
• Providing regular reports on reserve levels and asset valuation,
• Establishing robust governance and risk management measures, and
• Ensuring adequate consumer protection and complaint-handling procedures.

These requirements help protect consumers and maintain market stability, given that ARTs may serve as a more stable medium of exchange or store of value compared to other crypto-assets.

Simplified Framework

MiCA provides a simplified framework for certain ARTs that meet specific conditions:

• First Scenario: Over a 12-month period (calculated at the end of each calendar day), the average outstanding value of the ART must not exceed EUR 5,000,000 (or the equivalent amount in another official currency), and the issuer must not be linked to a network of other exempt issuers.
• Second Scenario: The public offer of the asset-referenced token must be directed solely to qualified investors, and the token can only be held by qualified investors.

For ARTs that qualify under either of these conditions, there is no requirement to establish a local EU entity or obtain prior authorisation from the regulatory authority. However, issuers of such ARTs must still draw up a white paper and notify the competent regulatory authority of it and, upon request, submit any relevant marketing communications.

This simplified framework can be especially valuable for projects seeking to tokenise assets that remain under the EUR 5,000,000 threshold at all times (potentially encompassing a broad range of tokenised less volatile real-world assets) or are offered solely to, and held exclusively by, qualified investors (such as tokenised baskets of commodities, financial instruments, or crypto assets).

E-Money Tokens under MiCA

What Are EMTs?

E-money tokens (EMTs) are crypto-assets intended primarily as a form of electronic money, pegged to a single fiat currency (e.g., EUR or USD) on a one-to-one basis. They serve as a digital representation of standard electronic money on a blockchain or distributed ledger.

EMTs Use Cases

1. Everyday Payments: E-money tokens facilitate quick, low-cost transactions for everyday purchases, offering users a familiar and stable value tied to one currency.

2. Cross-Border Transfers: Faster settlement times and lower fees compared to traditional banking make EMTs attractive for sending funds across borders, especially for businesses dealing with international transactions.

3. Corporate Cash Management: Companies can simplify payment operations by using e-money tokens for payouts to staff, suppliers, and other stakeholders, particularly when operating in multiple countries.

Requirements for Issuers of E-Money Tokens

Because EMTs aim to replicate or replace traditional electronic money, MiCA requires the issuers to comply with stricter rules and compliance obligations:

1. Obtain Authorisation: To issue e-money tokens, you need to be licensed as an e-money institution or credit institution, ensuring solvency, governance, risk management, and consumer protection standards. Among other requirements, this typically involves establishing a local presence, such as forming a local company, maintaining a physical office, and employing sufficient staff.

2. Complete Required Disclosures: Issuers must release a write paper or public document describing:

• Description of theEMT, including how its value is maintained (e.g., pegged to a single fiat currency) and any redemption rights,
• Information about how, where, and to whom the token is offered, as well as key dates and any conditions relating to the offer or admission to trading,
• Rights granted to holders (such as redemption at par value) and issuer’s obligations, including safeguarding and solvency requirements,
• Risks involved.

3. Maintain Reserve Funds: Issuers must hold sufficient reserves in the pegged fiat currency to guarantee redemption at par value (e.g., 1 token = 1 EUR), thereby safeguarding holders’ funds.

4. Offer Redemption Rights: Holders of e-money tokens must be able to redeem them at face value at any time, converting tokens back into the underlying currency in compliance with regulatory requirements.

5. Implement Proper Governance and Risk Management: As with ARTs, transparency, ongoing disclosures, and a robust operational framework are essential to keep user trust and meet regulatory and compliance requirements.

Practical Considerations for ARTs and EMTs

Determining the Right Token Category

Before launching a new crypto-asset, it is crucial to carefully assess which regulatory category the token falls into:

• Linked to a single currency: Likely an e-money token (EMT).
• Linked to multiple assets or a basket of assets: Likely an asset-referenced token (ART).
• Neither: Potentially subject to different MiCA rules or other regulations, such as financial regulations.

Developing a Regulatory Strategy

Issuing ARTs or EMTs can involve more regulatory requirements due to their potential impact on financial stability. You should:

• Clarify your business plan, i.e. how you will stabilise the token’s value, manage reserves, and handle operational expenses.
• Bring on board competent specialists and advisors with the requisite regulatory, financial, and technical expertise.
• Properly consider your timelines, as the compliance processes may require time and resources.

How We Can Help

The Aurum team is here to guide you through the complexities of MiCA, including the requirements for issuing both asset-referenced tokens (ARTs) and e-money tokens (EMTs).

We offer comprehensive legal support tailored to your specific needs, whether you are a token project issuer, promoter, exchange, wallet service, acquirer, investment manager, or broker.

If you plan to offer crypto-assets in the EU, we can help you with identifying the relevant MiCA requirements, evaluating different compliance approaches, and exploring potential legal alternatives where appropriate.

Leveraging our network of local partners, we deliver end-to-end assistance, including setting up EU-based entities, steering you through the licensing process, and formulating robust compliance strategies. Where needed, we can also assist with recruiting local personnel and addressing other concerns related to establishing and maintaining an EU presence. Contact us to discuss how MiCA may affect your crypto business and discover the most effective strategies for compliance.