From Fragmented Regulation to Systematic Governance: Interpretation of the EU MiCAR Regulatory Framework

1. Introduction: From Regulatory Void to Establishment of a Unified Framework

In 2023, the European Union officially launched the landmark Markets in Crypto-Assets Regulation (MiCAR). Against the backdrop of the gradual maturation of global crypto asset regulation, the EU introduced the MiCAR regulatory framework aimed at establishing a unified crypto asset regulatory framework for the 27 member states of the EU, replacing the previous “fragmented” regulatory practices of individual member states.

According to the EU legislative process, MiCAR will be implemented in phases:

·Starting from June 30, 2024, the key terms related to stablecoins (ART and EMT sections) will officially apply;

·Starting from December 30, 2024, the remaining provisions regarding the licensing of Crypto Asset Service Providers (CASP), prevention of market manipulation, investor protection, and other clauses will come into full effect.

The background of the proposal of MiCAR can be traced back to the “Digital Finance Strategy” proposed by the European Union in 2020. The core objective of this strategy is to balance innovation and regulation, protect investors, and maintain financial stability. Under this framework, MiCAR, along with regulations such as the “Digital Operational Resilience Act” (DORA), constitutes the core regulatory system for digital finance in the EU. More importantly, MiCAR is not just a regulation for “risk prevention”; rather, it is the EU's intention to provide long-term sustainable legal certainty for the blockchain and cryptocurrency industry through technology-neutral legislation, making it more relevant in practice. Below, this article will interpret the key contents related to the definition of crypto assets, asset reference tokens, and other main aspects involved in the MiCAR framework, and analyze the impact of this framework on the European cryptocurrency market.

2. Main Contents of the MiCAR Regulatory Framework

The regulatory framework of MiCAR can be divided into two levels: crypto assets and crypto asset service providers.

2.1 Definition and Classification of Crypto Assets

MiCAR, based on technological neutrality, defines “crypto assets” as “a digital representation of value or rights that can be transferred and stored electronically through distributed ledger technology (DLT) or similar technologies.” It categorizes Crypto Assets into three core objects, as follows:

2.1.1 Asset-Referenced Token (ART)

ART is a cryptocurrency, distinct from electronic money tokens (EMT), whose value is maintained stable by referencing some other value, equity, or a combination thereof. (Article 3(1)(6) of MiCAR).

According to Articles 16 and 20 of MiCAR, the entity intending to issue ART must complete the authorization process before the issuance, and the issuer must be a legal person established in the EU or an authorized entity. The authorization process must be initiated through a formal application (Article 18 of MiCAR). Additionally, the application must include a legal opinion confirming that the cryptocurrency indeed exists and falls within the definition of MiCAR, while not being classified as electronic money tokens (EMT). Finally, the intended issuer needs to submit a cryptocurrency white paper, which can only be published after approval.

2.1.2 Electronic Money Token (EMT, similar to stablecoins)

The value of electronic money tokens is intended to maintain stability by anchoring to the value of a specific official currency, and can be seen as stablecoins anchored to a single official currency (such as the euro, US dollar, etc.), which are specifically defined and regulated under MiCAR. According to Article 81(1) of MiCAR, only credit institutions or electronic money institutions can issue electronic money tokens (EMT). Additionally, since EMTs are legally classified as electronic money, issuers must also comply with the provisions of Chapters 2 and 3 of the Electronic Money Directive (EMD). MiCAR does not prescribe an authorization procedure for EMT issuers; they only need to notify the authorities and publish a white paper.

2.1.3 Other Cryptocurrencies

Cryptocurrencies of this kind, such as utility tokens and Bitcoin, are neither asset reference tokens (ART) nor electronic money tokens (EMT), and they do not fall under the category of cryptocurrencies excluded by MiCAR, generally not requiring issuance permission. In principle, such cryptocurrencies still need to prepare a white paper, notify the authorities, and publicly release it, but exemptions exist under certain conditions.

2.2 Cryptocurrency Asset Service Provider (CASP) System

MiCAR has established a unified regulatory framework for Crypto-Asset Service Providers (CASPs), imposing systematic regulatory requirements on CASPs that cover various service areas including custody, trading, exchange, consulting, issuance, and transfer. The core requirements for CASPs include:

2.2.1 Unified Licensing System (passporting):

Once a CASP obtains MiCAR authorization in any member state, it can operate throughout the European Union; this is known as the EU passport mechanism. The core of MiCAR is to unify all enterprises providing cryptocurrency asset services to EU users under the regulatory framework of CASP. Any CASP wishing to operate within the EU must obtain authorization in any member state, after which it can serve the entire EU market through the principle of “single license passage.”

In addition, MiCAR specifies 10 types of service activities, and as long as a company engages in any of these activities within the EU, it must obtain a MiCAR license and be subject to regulatory constraints.

This classification system almost covers all major business forms in today's cryptocurrency market, which also means that whether it is a mature large trading platform or an innovative project in its early stages, as long as they provide relevant services to EU users, they must fall within the regulatory scope of MiCAR.

2.2.2 Transition Arrangements:

To ensure a smooth transition, MiCAR has established transitional provisions: CASPs that have been operating in compliance with national laws before December 30, 2024, are allowed to continue operations during the transition period until they obtain or are denied a MiCAR license, or at the latest, cease operations by July 1, 2026. Member states may set their own transition periods, which may vary in length. This arrangement provides an 18-month buffer for the market, allowing regulatory authorities and industry participants sufficient time for institutional alignment and compliance adjustments. It also effectively addresses the previous issue of “multiple regulations” within the EU, making the regulatory environment more certain and competitively fair.

3. Impact on the Regulatory Landscape of Cryptocurrency Taxation

The introduction of MiCAR is not only an update of the regulatory system but also profoundly influences the EU's tax policy and compliance regulatory landscape.

3.1 Issuance Regulation: From White Paper Disclosure to Reserve Constraints

3.1.1 Standard Crypto Asset Issuance: White Paper Disclosure + Light Regulatory Model

Under the MiCAR framework, for ordinary crypto assets that do not belong to ART or EMT, the regulatory approach is a relatively mild one of “disclosure as the main focus, with approval as a supplement.” First, the issuer must be a legally qualified company or legal entity, so that its actions can be legally traceable and accountable, allowing for accountability in case of disputes. Second, the issuing entity must draft and publish a white paper (crypto-asset white paper) in accordance with MiCAR requirements, disclosing key information including but not limited to: issuer name, registered address, governance structure; the technical architecture, working principles, and rights mechanism of the issued tokens; risk disclosures (such as smart contract risks, liquidity risks, policy risks, etc.); investor rights and obligations, fee structure, issuance/burning mechanism; compliance statements (e.g., phrases like “This white paper has not been approved by the competent authorities of the EU” to avoid misleading investors into believing they have official endorsement). In addition, MiCAR also requires issuers to have a continuous obligation to update regarding significant changes. That is to say, when there are changes in project structure, funding arrangements, risk factors, etc., that may affect investment decisions, the white paper should be promptly revised or a modification notice disclosed to ensure that investors always have access to the latest and most accurate information.

Under this mechanism, projects do not need to undergo complex prior approvals, thereby lowering the entry barrier, which is beneficial for innovators and small projects to participate in the market; at the same time, through the design of information disclosure and accountability systems, it can also balance the protection of investors' right to know and maintain market vitality.

3.1.2 Stablecoins: Strong Regulation + Rigid Reserve Constraints

Unlike the relatively loose issuance system mentioned above, MiCAR imposes a strict and rigid regulatory framework on the issuance of stablecoins—namely ART and EMT—to ensure the robustness of these tokens in terms of redemption, reserves, and security.

(1) Authorization Requirements and White Paper Approval

Starting from June 30, 2024, all projects that publicly issue ART or EMT in the EU, or are listed on exchanges, must obtain authorization from the competent authorities of their respective countries.

In the case of ART, issuers other than credit institutions must apply for MiCAR authorization and submit a white paper during the authorization process, which can only be published after review by the regulatory authority.

For EMT, the issuing entity must be a credit institution or an electronic money institution (EMI), authorized under the traditional Electronic Money Directive (EMD) or other regulatory frameworks.

After the submission of the white paper, the regulatory authority must determine within a specified time whether it is complete and complies with regulatory requirements; if it does, it will be approved or filed.

MiCAR also recognizes that certain ARTs or EMTs may be larger due to their scale and other factors, which could pose higher risks. Therefore, the European Banking Authority (EBA) will assume regulatory responsibility for the issuance functions of institutions issuing significant ARTs and certain significant EMTs under MiCAR.

(2) Reserve Funds and Asset Segregation

The reserve and asset segregation system is the most critical part of the MiCAR regulatory design: issuers must establish a reserve asset pool that is segregated from their other assets, primarily to ensure the fulfillment of token holders' redemption requests. In other words, even if the issuer goes bankrupt, this portion of reserve assets should not be used to settle debts or liquidate for other creditors.

The requirements for reserves in terms of composition and liquidity are also very strict:

·The reserves must be diversified and can only include highly liquid, low-risk assets (such as deposits, government bonds, high-quality covered bonds, certain money market instruments, etc.).

·Regarding the deposit ratio in credit institutions, the EBA suggests in the draft regulatory technical standards (RTS) published in 2024 that at least 30% of the funds for non-significant stablecoins must be deposited in banks to ensure the underlying redemption capability. If the stablecoin is deemed significant, 60% must be deposited. Additionally, when token holders submit redemption requests, the issuer should have the ability to promptly liquidate the reserve assets. (Refer to the original RTS: Article 36(1) of Regulation (EU) 2023/1114 requires issuers of asset-referenced tokens (ARTs), whether they are either if the ARTs are significant ARTs or not, to constitute and maintain a reserve of assets at all times to cover their liabilities against the holders of their issued ARTs matching the risks reflected within these liabilities. The reserve of assets is composed of the assets received when issuing the token holders and by the highly liquid financial instruments the issuer may invest in. In the case of tokens referenced to official currencies, a minimum part of the reserves should be held in the form of deposits in credit institutions (at least 30% of the amount referenced in each official currency if the token is not significant, and at least 60% if the token is significant). Upon redemption requests from token holders, the issuers should be able to liquidate the reserve assets.)

·If an ART or EMT is deemed “significant,” regulatory authorities may require higher liquidity and concentration limits, risk mitigation measures, etc.

In addition, if the market value of the reserve assets declines or undergoes adverse changes, the issuer must promptly make up the difference (i.e., perform “rebalancing” or compensation) to ensure that the total value of the reserve assets is always ≥ the total value of the issued tokens.

Under this framework, the requirements for the funds, liquidity, and operational resilience of stablecoin issuers are extremely high, significantly raising the issuance threshold. This “rigid constraint” mechanism of stablecoins aims to prevent large-scale redemption pressure, payment default crises, and risks of confidence collapse, thereby enhancing the safety of the stablecoin system for holders and the entire financial system.

The Impact of MiCAR 3.2 on the Cryptocurrency Taxation System

According to Article 98 of MiCAR, the tax authorities of each member state are included in the cooperative regulatory framework for crypto assets and must share necessary information with financial regulatory bodies (such as the national financial management authority and the European Securities and Markets Authority ESMA) to identify cross-border transactions and potential tax evasion. This means that tax departments are formally embedded into the regulatory chain of crypto assets for the first time, no longer relying on post-event investigations or voluntary declarations, but can utilize the transparency mechanisms established by MiCAR for real-time or periodic monitoring of transactions.

However, MiCAR does not directly stipulate tax collection rules but complements the EU's Eighth Directive on Administrative Cooperation in Tax Matters (Directive (EU) 2023/2226, or DAC8). DAC8 requires that, starting from January 1, 2026, all crypto asset service providers (CASPs) operating within the EU must report transaction data of EU resident clients to tax authorities, including information on buying, selling, transferring, staking, airdrops, and earnings. This data will then be automatically exchanged between EU member states, thereby establishing a crypto tax information sharing network covering the entire EU. Member states must complete the transposition of their national laws by December 31, 2025, to ensure the synchronized implementation of DAC8 and MiCAR.

The linkage of the two regulations marks that the EU is forming a dual pillar compliance system of “MiCAR regulation + DAC8 tax reporting”: the former ensures compliance and transparency of trading activities through a unified licensing and disclosure mechanism, while the latter achieves a closed-loop tax administration through a data sharing mechanism. This system design not only enhances the ability of tax authorities to grasp cross-border cryptocurrency flows but also effectively prevents common issues such as tax arbitrage and offshore hidden accounts. In addition, the mandatory reserve and redemption system for stablecoins mentioned earlier in MiCAR also provides a quantifiable basis for funding tracking in tax collection. Daily market monitoring of reserves, regular audits, and public disclosure allow regulatory authorities to accurately assess the asset backing and income sources of stablecoins, providing an objective basis for taxing interest income, investment income, and exchange rate differences.

4. Recommendations for Investors and Institutions

In the face of the systemic regulatory transformation brought by MiCAR, European investors and crypto companies should adopt proactive compliance and risk management strategies.

4.1 Investor Level: Strengthen Tax Compliance and Reporting

The transformation of systemic regulation has led to a demand for automated tax compliance tools. For institutional investors with larger volumes and more complex structures, solely relying on personalized tools is no longer sufficient to meet compliance and audit requirements; individual investors can also use such tools to record transaction and income data in real time, enabling the automatic generation of tax returns and improving the efficiency and accuracy of tax filing. Taking FinTax Suite as an example, this system adopts a modular architecture that can seamlessly integrate with mainstream ERP systems. Through an intelligent rule engine and a multi-dimensional reporting system, it covers key aspects such as data capture, automatic bookkeeping, report generation, and compliance auditing, helping enterprises achieve financial transparency and tax compliance in the global regulatory environment. FinTax Suite also supports audit-ready GAAP/IFRS standard financial reports, dual accounting systems for stablecoins and fiat currencies, AI-OCR invoice recognition, and bank statement imports, providing comprehensive fiscal and tax management solutions for on-chain payment and high-frequency trading enterprises. Furthermore, multinational investors need to pay attention to the cross-border reporting requirements under DAC8, clarifying the differences in capital gains tax and value-added tax among EU member states.

4.2 Institutional Level: Prepare MiCAR license application in advance

For cryptocurrency exchanges, custodians, and wallet service providers, obtaining MiCAR authorization is a prerequisite for entering the EU market. Relevant institutions planning to enter the European market need to communicate in advance with regulatory authorities of EU member states to clarify the length of their country's transition period. After all, although the threshold for MiCAR authorization is high, once obtained, it grants access to the entire EU market, which can provide a significant competitive advantage for long-term development.

For third-country companies wishing to provide crypto asset services in the EU, it is also necessary to establish a physical presence within the EU and apply for CASP authorization in accordance with MiCAR. The only exception is the so-called “reverse solicitation” scenario, where the client initiates a service request entirely at their own volition. It is important to note that the final report on reverse solicitation issued by the European Securities and Markets Authority (ESMA) aims to tighten the scope of reverse solicitation under the MiCAR framework. Non-EU platforms that contact EU clients through reverse solicitation without authorization may expose investors to legal risks.

5. Conclusion: MiCAR - The Balance Between Regulation and Innovation

The introduction of the EU MiCAR marks the transition of crypto assets in Europe from a phase of wild growth to a more mature and regulated mainstream financial development system. It is both a response to risks and a provision of institutional soil for innovation. In the coming years, the interplay between MiCAR and regulations such as DAC8 and DORA will create a more transparent, secure, and efficient crypto market. For investors, compliance is no longer a burden but a safeguard mechanism leading to legitimacy and long-term returns. For companies, while MiCAR sets thresholds, it also serves as a passport to enter one of the world's largest crypto markets. For all market participants, the implementation of MiCAR is not only a comprehensive compliance test but also a key window to seize opportunities of the times and achieve business leapfrogging. Only by proactively adapting to regulatory trends and deeply integrating compliance concepts into corporate strategy and operations can one remain invincible in the new competitive landscape.