Key takeaways
- MiCA classifies crypto assets into e-money tokens and asset-referenced tokens, each with distinct regulations.
- By legitimizing the sector, MiCA attracts institutional investors and fosters innovation, enabling startups to thrive in a structured, predictable regulatory landscape.
- Compliance with MiCA’s stringent requirements, especially for stablecoins and smaller businesses, may incur significant costs and create hurdles, particularly for resource-limited entities.
- MiCA promotes transparency, consumer protection and accountability, increasing market trust and deterring manipulation, positioning the EU as a leader in crypto governance.
Markets in crypto assets Regulation (MiCA) is a regulatory framework that aims to shape the future of cryptocurrency in the European Union. It classifies crypto assets into multiple token types, each governed by different regulations. Understanding these categories is critical for navigating the changing regulatory landscape in the region.
This guide deconstructs the MiCA token types and explains their functionalities. Whether you are a crypto enthusiast or run a business, this guide will explain how MiCA establishes and manages the tokens that power the digital economy.
What is MiCA?
MiCA is an EU regulatory framework that aims to establish a consistent legal environment for crypto assets. Introduced in 2020 and currently in the implementation stage, this regulation aims to enhance the crypto asset market by addressing fragmentation, safeguarding consumers and bolstering financial stability.
By establishing uniform standards for issuers and service providers across all EU member states, MiCA eliminates regulatory inconsistencies. The regulation prioritizes key areas such as stablecoins, token issuance and platform operations, positioning the EU as a leader in crypto governance while fostering a balanced environment for both businesses and consumers.
Did you know? The full title of MiCA is “Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 2023, on markets in crypto assets, and amending Regulations (EU) No 1093/2010 and (EU) No 1095/2010 and Directives 2013/36/EU and (EU) 2019/1937.”
Scope of MiCA and exclusions
MiCA applies only to crypto assets explicitly defined under the regulation, excluding those outside its definitions. For instance, the nontransferable tokens don’t fall under the ambit of MiCA, which defines crypto assets as “a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology.”
Article 2 exempts certain crypto assets from the scope of MiCA, such as those deemed “unique and not fungible with other crypto assets,” commonly referred to as NFTs. This includes non-transferrable digital assets like specific loyalty points.
It also excludes crypto assets that qualify as financial instruments, funds, deposits, non-life or life insurance contracts, securitization positions, Social Security schemes and pension products or schemes. Financial instruments such as money-market instruments, transferable securities, various derivative contracts, units of collective investment undertakings and emission allowances are regulated under the Markets in Financial Instruments Directive II (MiFID II).
Under MiFID II, interpretations of financial instruments vary between EU Member States. While MiCA applies uniformly across the EU as a regulation, MiFID II, being a directive, is subject to national interpretations.
In a nutshell, exclusions under MiCA include the following crypto products:
Financial instruments, nontransferable digital assets, funds, securitization positions, insurance policies, pension products and Social Security schemes, deposits and structured deposits, non-fractionalized NFTs, central bank digital currencies (CBDCs)
Did you know? Recognizing the growing public interest in cryptocurrencies, with an estimated 31 million European users by 2024, the European Union initiated the groundwork for MiCA in 2018.
MiCA token types: EMTs vs. ARTs
MiCA classifies crypto assets into three types: e-money tokens, asset-referenced tokens, and other crypto assets:
E-money tokens (EMTs)
EMTs are defined in Article 3(1)(7) as “a type of crypto asset that purports to maintain a stable value by referencing the value of one official currency.” A central bank or monetary authority issues an official currency, as defined in Article 3(1)(8). This category is largely for fiat-pegged stablecoins. However, the definition of EMTs raises some important points, as discussed below.
Applies to assets that focus on maintaining a steady value
EMTs are any crypto asset that aims to maintain a steady value related to an official currency, independent of the stabilizing method, whether collateralized or algorithmic. Importantly, it applies to assets that aspire to maintain steady value, even if they do not.
EMTs must be pegged to an official currency issued by a central bank or similar authority. This excludes crypto assets that reference other cryptocurrencies, even if they have legal tender status, such as Bitcoin (BTC) in El Salvador.
Not electronic money
EMTs are sometimes confused with electronic money, as defined in Directive 2009/110/EC (E-Money Directive II or EMD II). Electronic money is a stored monetary value issued upon receipt of funds for payment transactions. However, EMTs are regulated under MiCA, while electronic money falls under the jurisdiction of EMD II.
MiCA’s Title IV, beginning with Article 48, adds complexity by declaring that “e-money tokens shall be deemed to be electronic money,” implying that EMD II laws apply to EMTs until indicated otherwise.
Despite these similarities, EMTs and electronic money differ in their methods of issue and public accessibility. Unlike electronic money, EMTs can be offered openly, distinguishing their functioning and regulatory status. Thus, despite their similarities, EMTs remain a unique class of crypto assets under MiCA’s structure.
Asset-referenced tokens (ARTs)
Article 3 defines ARTs as “a type of crypto asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.” This definition expressly excludes EMTs to avoid any confusion between the two groups.
Distinguishing ARTs from EMTs
While ARTs and EMTs both aim to maintain stable values, they differ in what they reference. ARTs achieve stability by referencing other values, rights or a mix of the two, including official currencies, rather than solely relying on an official currency.
This broader definition sets ARTs apart from EMTs and positions them as a distinct type of stablecoin under MiCA. Unlike EMTs, which are mainly used for onchain payments, ARTs serve diverse purposes, such as tokenizing real-world assets.
Capturing diverse value references
MiCA does not clearly define “value” or “right” for ARTs. However, Recital 2 explains that “value” refers to the market value attributed by participants. The inclusion of “rights” expands the category, allowing ARTs to encompass assets tied to real-world asset tokenization. This flexibility makes ARTs suitable for assets seeking stability outside the EMT criteria.
Addressing regulatory loopholes
EU legislators created the ART category to close regulatory loopholes and future-proof the framework. For instance, crypto assets referencing the value of an EMT or other currencies are classified as ARTs to prevent avoidance of EMT regulations. ARTs also include tokens linked to multiple values or rights, ensuring coverage of emerging crypto asset models and adding complexity to their regulation.
Importantly, ARTs cannot be classified as financial instruments under MiFID II. If they share features with financial instruments, those characteristics take precedence, requiring a thorough classification process.
Did you know? The EU passed MiCA in 2022 with a phased implementation. Regulations for stablecoins became effective in June 2024, and the rules for crypto asset service providers followed in December 2024.
Other assets – Title II
The third and final category of crypto assets under MiCA comprises any crypto assets that are regulated but not designated as EMTs or ARTs. This catch-all category lacks a clear definition. As the first crypto asset and the one with the biggest market capitalization, Bitcoin falls into this category.
Furthermore, the European Securities and Markets Authority (ESMA) stated in its third Consultation Paper that legislators planned to regulate “utility tokens” within this category.
- Utility tokens: According to ESMA, legislators used a functional approach, categorizing crypto assets as utility tokens, currency/payment tokens, and financial/investment/security tokens, which are partially mirrored in MiCA. MiCA expressly defines utility tokens despite the fact that they are a subset of this larger category. Article 3 defines them as “a type of crypto asset that is only intended to provide access to a good or service supplied by its issuer.” However, utility tokens that provide access to currently functioning commodities or services are exempt from MiCA’s Title II but not its overall scope.
- Governance tokens: This undefined category includes assets other than utility tokens, such as governance tokens. These tokens often lack stable value references to assets, rights or official currencies but may give governance privileges such as voting, necessitating their classification to circumvent financial instrument qualifications.
- Hybrid tokens: This category includes hybrid tokens, which combine numerous properties. ESMA recommends analyzing such tokens on a case-by-case basis, taking into account their rights, functions and value. However, financial instrument classification supersedes MiCA definitions.
- NFTs: This group also encompasses crypto assets that do not meet MiCA's stricter standards for NFTs. While industry standards like ERC-721 and BEP-721 indicate uniqueness, ESMA cautions that they should not be the sole determining factors. Issuers must clearly define their crypto assets to ensure they align with MiCA’s legal requirements and definitions.
MiCA classification of top 50 crypto assets
Here is a classification of the top 50 crypto assets under MiCA:
Understanding the complexities of MiCA classifications and their impact on crypto assets
The following frequently asked questions clarify the classification and regulatory considerations of different crypto assets under MiCA.
Can a token be classified as both an EMT and an ART?
No, a crypto asset cannot simultaneously be classified as an ART and an EMT.
If its value is linked to a single official currency, it’s classified as an EMT. If its value references two or more official currencies, it is classified as an ART. It can’t be both!
How are MiCA-classified EMTs different from traditional stablecoins?
MiCA distinguishes EMTs from stablecoins largely by their regulatory alignment and purpose. EMTs are designed to act as electronic money with a steady value based on a single official currency. They are regulated to ensure consumer safety, financial stability and transparency, in line with existing e-money directives.
Traditional stablecoins, while aiming for stability, may not be linked to a single official currency and frequently lack the rigorous regulatory structure used by EMTs. They can be backed by various assets, values or rights, leading to broader use cases but potentially offering less security or consistency.
MiCA’s EMT classification assures these tokens are utilized for payment-related activities, with safeguards similar to traditional financial systems. On the other hand, stablecoins may cater to broader use cases, such as decentralized finance (DeFi) and cross-border transactions. Sometimes, stablecoins operate outside of strict legal monitoring. This differentiation ensures that EMTs fulfill a specific, regulated financial purpose.
What happens if an ART token’s referenced asset experiences market volatility?
ARTs aim to maintain stability by referencing assets, rights or a combination of both. If the underlying asset experiences market volatility, the ART’s stability mechanism may be challenged.
Issuers of ARTs must implement robust risk management procedures and reserve requirements to mitigate volatility impacts. To safeguard tokenholders, issuers must ensure transparency in governance, disclose reserve compositions and define redemption rights, allowing holders to redeem their ARTs at the correct value, even amid market disruptions.
If volatility significantly disrupts stability, regulatory authorities like ESMA may intervene, directing issuers to take corrective measures to restore balance. In extreme cases, ARTs may lose their classification if they fail to maintain a consistent value. MiCA’s comprehensive regulatory framework aims to minimize risk, build trust and shield the financial system from instability caused by volatile underlying assets.
Are tokens like Bitcoin or Ether considered EMTs or ARTs under MiCA?
Tokens such as Bitcoin and Ether (ETH) are not classified as EMTs or ARTs by MiCA.
BTC and ETH are decentralized crypto assets with no connections to any underlying asset or currency and, therefore, do not seek to maintain a constant value.
Are NFTs covered by MiCA regulations?
NFTs are partially covered by MiCA regulation, although their inclusion depends on their specific characteristics. MiCA defines NFTs narrowly, emphasizing their uniqueness and non-fungibility. Crypto assets labeled as NFTs by their issuers may fall outside the scope of MiCA if they fail to meet these stringent requirements.
For example, NFTs supplied in bulk with identical or comparable properties may be classed as fungible and fall under MiCA’s jurisdiction. But, genuinely unique tokens, like digital art or collectibles, may remain outside MiCA’s regulatory framework.
ESMA recommends analyzing NFTs on a case-by-case basis, taking into account their technical characteristics and intended usage, to determine if they comply with MiCA’s definitions and regulatory criteria.
How could CASPs comply with MiCA?
To comply with MiCA, crypto asset service providers (CASPs) must adhere to regulations and acquire authorization in the EU member state where they operate. Registering with national authorities and ensuring open and fair operations while satisfying governance and risk management criteria are all important steps toward compliance.
CASPs must give clear, extensive white papers for the crypto assets they sell, detailing their functionality, dangers, and issuer data. They must put in place rigorous safeguards to protect client funds, such as segregated accounts, and adhere to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) regulations.
MiCA also requires periodic reporting to authorities and maintaining robust IT systems to ensure operational resilience. CASPs must develop clear complaint resolution systems and demonstrate financial soundness.
Under MiCA, member states have set up a grandfathering period under Article 143 of Regulation (EU) 2023/1114. The grandfathering period is a transitional phase that allows CASPs to continue providing crypto asset services while MiCA is in the implementation phase.
By meeting these requirements, CASPs can increase user trust, reduce risks and contribute to a more regulated and transparent crypto industry within the MiCA framework.
Impact of MiCA on the crypto market
The crypto market faces both revolutionary prospects and difficulties due to MiCA. It offers a uniform regulatory framework throughout the EU, which has eliminated uncertainty to an extent. It will create an environment that promotes innovation in the crypto space, thus giving the startups the bandwidth they require. It provides the sector legitimacy, enabling institutional investors to enter the space.
But challenges persist. The regulation also means more compliance expenses for crypto enterprises, which might squeeze them financially, at least for a while. The regulation’s stringent restrictions on stablecoins and crypto asset issuers may create problems for organizations with limited resources. It is also essential to see how fast regulators can meet the changing crypto ecosystem.
These obstacles notwithstanding, MiCA has improved market stability and trust. A proper regulatory framework for crypto will draw wider audiences, safeguard consumers and stop market manipulation. MiCA has introduced well-defined crypto governance in the EU by encouraging accountability and transparency.