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In light of quickly emerging new projects stored on blockchain, the EU sets the first rules to regulate cryptocurrencies. EU authorities agreed on the adoption of legal mechanisms that would oversee the cryptomarket, obliging businesses to apply for authorizations to operate and provide services to users. Although the proposal still has to go via Brussel’ legit processes and might not be implemented until 2025, official representatives state it will turn the European Union into the first global crypto hub, where all 27 member-states will become the countries of free choice for those willing to create and engrain innovations in the crypto field. Currently, some countries do have laws administering cryptos at the local level, but new rules would create the EU framework launched firstly.
While establishing obligations on crypto firms and providers of cryptocoins, a new legal mechanism will also facilitate the provision of crypto services internationally within the EU.
The discussions around regulation follow months of unsettlement in the crypto domain. In May 2022, stablecoin UST crashed, resulting in anxiety across the market. Meanwhile, the values of BTC and other coins also tumbled. Lenders told holders they couldn’t take their contributions out, demonstrating how insecure investors are in a market that remains practically unregulated.
Under MiCA, which recently entered force, investors will obtain some protection. Namely, stablecοin issuers will be obliged to keep reserves that will be the same as mass withdrawals and be based in the EU. This landmark rule will put an end to the crypto uncertainties and confirm the EU’s role as a standard-setter for financial technologies. Also, for large stablecοins, there will be imposed a cap of approximately 200 million USD in transactions a day.
New rules also hit tokens without issuers, such as BTC. Under them, exchanges will have to outline a coin’s technologies and purposes, and bear liability for any misinformation. They will also be necessitated to lay out the pοssibility of risks for holders and comply with rules on storage of confidential details.
EU authorities assure that new rules will turn Europe into a one-of-its-kind broaden area with united oversight for virtual funds.
The ESMA will be empowered to apply restrictions on services offered by exchanges and will be responsible for maintaining a register of non-compliant providers.
NFTs or non-fungible tokens will be largely excluded from the legal mechanisms. It is expected that the EU Commission might come up with a separate proposal for these digital assets, which evidence ownership of digitalized assets like arts, songs, and films.
The recently proposed framework excludes decentralized finance, or DeFi – services offered on publicly accessible blockchains. This sector of the crypto universe has shown a rapid and successful rise in the past two years. And the recent decline in crypto valuations has led to concerns about holder protection rights, as some of these exchanges have faced liquidity and stability challenges.
The EU reached the MiCA framework prοposal in September 2020. According to the official comments, the primary purpose of this prοposed legislation is to foster innovations and new contributions to the market, while also guaranteeing strong protection for market players.
Further, the framework must obtain approvals from the EU member states and the Europarliament prior to transporting the rules to EU countries.
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