What's Really Wrong about MiCA?

This is a two-page rant and satire (though factually correct). If you’re not a fan of good old rants, feel free to skip it!

MiCA or Markets in Crypto-Assets regulation has now been in effect since June 30th, 2024 for asset-reference (ART) and electronic money tokens (EMT). For others in its remit, it came into effect on December 30th, 2024. ¹

When the later draft versions of MiCA were released, I was initially optimistic and supportive. Improved transparency, a regulatory framework to encourage institutional adoption, and potentially more capital—what’s not to like? However, as the Head of Product and Growth at Membrane Finance, a MiCA-compliant stablecoin issuer, I’ve spent my fair share of late nights working closely with MiCA. The deeper I delved, the clearer it became how fundamentally flawed this regulation is.

MiCA’s Core Purpose – Investor Protection?

MiCA’s primary goal was likely to protect investors. Unfortunately, it’s a deeply flawed, anti-competitive regulation that stifles innovation while offering little in the way of meaningful investor protection.

Crypto-assets are inherently transparent. Their movement and functioning can be openly tracked. When managed by a professional team, on-chain disclosures provide near-perfect transparency—rules that no one can bypass. Numerous tools exist to enhance investor decision-making:

• Bluechip – an organisation dedicated to assessing the risks of various stablecoins
• Arkham Intelligence – a platform for figuring out who funds belong to
• Nansen – analytics for tracking smart money movements and trading activity
• Breadcrumbs – a simple visualisation tool for fund movements
• Rugchecker – token safety analytics
• Chainalysis – more in-depth AML/CT tooling for blockchain investigations
• Chainlink PoR – bringing assurances from the off-chain world to on-chain

If all this information is available, what more do we need in terms of investor protection regulation? The answer: not much.

What MiCA Really Achieved

Instead of enhancing the ecosystem, MiCA managed to:

• Raise barriers to entry for stablecoins:
  • Issuers must be an EMI/CI (Electronic Money Institution/Credit Institution).
  • Estimated cost: €300k+ for setup and at least €125k/year in compliance costs.
  • Substantial capital buffers are required. Running a large-scale stablecoin as an EMI is nearly impossible due to capital structure constraints—you effectively need to be a bank.
• Raise barriers to tokenising other assets:
  • Token issuers must be a credit institution or an authorised legal entity.
  • Costs are similar to stablecoin issuance. Realistically, you also likely need to be a bank.
  • Our dear friends at ESMA (European Securities and Markets Authority)—a bureaucratic engine of non-elected officials—decide who gets authorised. ²
• Lower collateral quality:
  • Stablecoins now shift from narrow-banking instruments like government bonds to fractionally reserved banks. ³
• Regress AML legislation by a decade:
  • Other tokens (not stablecoins or asset-referenced tokens) can be issued without a KYC process. Yeeet!
• Legitimise potential scams:
  • Willing to pay hefty legal fees? You can get a “MiCA-compliant” token that allows for a rug pull if the token design enables it.
• Funnel money to bureaucrats’ friends:
  • This is a bit of a story, so bare with me. I’m sure there are more examples, but one of the most egregious ones I have found so far is the “Digital Token Identifier Foundation” (DTIF) scam. Here’s how it works: MiCA requires various things in whitepapers and elsewhere, let’s call those things X, collectively. X was implemented by non-democratically selected ESMA (European Securities and Markets Authority) staff through “Regulatory Technical Standards”, or RTS. ESMA decided that X’s implementation must require a unique identifier for all relevant assets (because assets on blockchains do not clearly have a unique identifier, right?). So, to get a unique identifier, you must register your token with DTIF, which is a non-profit division of Etrading Software, a UK based for-profit company. Everyone who gets such a unique identifier, also gets a bill on a cost-plus basis. So we are effectively funneling funds from the EU to a for-profit company in the UK whose Head of Regulatory Affairs happens to be – wait for it – an ex-Senior Policy Officer of ESMA. I kid you the fuck not. ^{4 5}
  • As a side note, the Court of Justice of the European Union has already ruled that

Good job, EU. Regulate yourself into irrelevance while other jurisdictions continue to innovate.

But Wait, There’s More!

I’m thrilled to announce my new role as Strategic Advisor for the first MiCA-compliant meme coin: White Swan ($SWAN). Inspired by a swan picture posted by trader and influencer Crypto Capo, $SWAN represents the ultimate triumph of MiCA’s vision.

Launching on January 10, 2025, $SWAN will be the first MiCA-compliant ICO with no KYC required! I’m excited to help build this groundbreaking project. Rest assured, I’ll be moving my tax residency to the UAE before my tokens vest!

PS: Here’s a new motto for the ESMA:

Overreach, over regulate, under perform, under deliver.

Footnotes and references