Response to consultation on Guidelines on templates for explanations and opinions, and the standardised test for the classification of crypto-assets under MiCAR
1. Do respondents have any comments on the template for the purposes of Article 8(4) Regulation (EU) 2023/1114?
Our recommendation aims to ensure efficiency, reduce duplicative work, and promote a truly harmonized framework for the classification and reporting of crypto-assets in the European Union for the purposes of Article 8(4), Article 17(1), and Article 18(2) under MiCAR. The current approach, which requires multiple entities (e.g., issuers, centralized exchanges (CEXes), and trading platforms) to submit the same template, results in redundant reporting that contradicts MiCAR's objective of establishing a level playing field, a harmonized framework across the European Union and promoting innovation.
1. Current issue: Duplication of reporting templates
According to Article 8(4) of MiCAR, issuers, offerors, persons seeking admission to trading, and operators of trading platforms are required to submit templates that provide detailed explanations for the classification of a crypto-asset. While this process ensures compliance, it results in unnecessary duplication when multiple parties are mandated to submit the same information for a single asset.
For example, if Circle classifies its stablecoin EUROC as an EMT, every crypto exchange or multilateral trading facility listing the same asset must also submit an identical classification template. This scenario significantly increases administrative burden and undermines MiCAR's harmonization goals.
2. Recommendation: Centralized European registry for classified crypto-assets
We propose the establishment of a centralized European registry for classified crypto-assets to streamline the classification process and eliminate duplicative reporting. The proposed solution aligns with the broader principles of other EU financial regulations such as MiFID.
For example, once an instrument is classified as a financial instrument under MiFID II, this classification is recognized across the EU without requiring other trading venues, operators, or investment firms to reclassify it. Article 4(1) of MiFID II provides a comprehensive list of what constitutes a financial instrument, including transferable securities, money-market instruments, derivatives, and units in collective investment undertakings. This standardized definition ensures that once an asset is classified as a financial instrument in one Member State, it is recognized as such throughout the EU. The classification is consistent across the EU, meaning that there is no need for reclassification by different trading venues or investment firms. This principle is crucial for ensuring regulatory efficiency and market integrity across the single market.
We propose the establishment of a centralized European registry for classified crypto-assets to streamline the classification process and eliminate duplicative reporting. Our recommendation includes the following key points:
Single submission:
When an issuer submits a template to classify its crypto-asset, this classification should be centrally recorded in a European registry managed by a regulatory body such as the ESMA or a designated authority.
Harmonized recognition across the EU:
Once a crypto-asset has been classified and recognized in the registry, this classification should automatically apply to all operators (exchanges, MTFs, trading platforms) within the EU. No further submission of duplicative classification templates should be required.
Simplified template for trading platform operators:
Instead of submitting the entire classification template again, trading platforms or CEXes should be allowed to submit a shorter template that references the existing classification in the European registry. This submission should primarily indicate:
1. The crypto-asset’s unique identifier in the registry.
2. Confirmation of compliance with any specific conditions tied to the asset’s classification.
Decentralized assets (e.g., Bitcoin, Ethereum):
For decentralized assets like Bitcoin and Ethereum, where no issuer exists, the prerogative for classification should lie with the first trading platform operator listing the asset. Once the asset is classified, this status should be reflected in the centralized registry, eliminating the need for multiple trading platforms to submit the same classification. Alternatively, a "review window" for decentralized assets can be introduced. After the first trading platform provides the classification, ESMA page can display a new entry which other entities can comment on.
3. Conclusion
Creating a centralized registry would reduce administrative costs, foster regulatory certainty, and promote innovation by allowing market participants to focus on business operations rather than repetitive compliance work. Additionally, it would contribute to a harmonized supervisory approach, prevent regulatory arbitrage, and ensure a consistent implementation of MiCAR across the EU.
2. Do respondents have any comments on the template for the purposes of Article 17(1) point (b)(ii) and Article 18(2) point (e) of Regulation (EU) 2023/1114?
See response to Question 1.
3. Do you consider that the fields of the template relating to explanations as to regulatory status are sufficiently clear and would enable a proportionate completion in line with the simplicity or complexity of the structure of the crypto-asset to which the explanation or legal opinion relates?
NA
4. Do respondents have any comments on the standardised test?
1. Main problems and inconsistencies with the standardized test
- Ambiguity of definitions: “stable value”, “right”, “value”. In particular, the “stable value” in Question 7 might refer to volatility of the asset.
- ART scope: Question 10 only specifies one or more official currencies and is ambiguous with respect to ARTs. MiCAR identifies the scope of assets for ARTs in Article 3(1)(5). This article defines ARTs as a type of crypto-asset that is not an electronic money token and that aims to maintain a stable value by referencing another value or right, which can include one or more official currencies, commodities, or a combination of assets, including other crypto-assets.
- EMT- and ART-related questions are inconsistent with MiCAR and may result in false negatives and false positives test results. Examples are listed below.
2. Examples of the inconsistencies (corner cases, false positives and false negatives)
2.1. False Positive: token incorrectly classified as EMT. Algorithmic stablecoin - Celo EUR (CEUR)
- Description: CeloEUR (CEUR) is an algorithmic stablecoin designed to maintain a stable value relative to the Euro (EUR). It is not backed by any fiat reserves but uses a supply adjustment mechanism (like rebase) to maintain the peg to EUR.
- Expected classification under MiCAR: Not an EMT because it lacks traditional fiat backing or legal redemption at par value.
- Outcome of the test: The standardized test steps would classify CEUR as an EMT because it references an official currency (EUR) and purports to maintain a stable value.
- Result: False Positive. CEUR would incorrectly be classified as an EMT despite having no fiat reserves and relying purely on algorithmic mechanisms.
Other similar examples: fractional stablecoins such as FRAX
2.2. False Positive: Token is incorrectly classified as ART. Synthetic asset token - SynthOil (SOIL)
- Description: SynthOil (SOIL) is a synthetic token that tracks the price of oil but is not backed by actual oil reserves. Instead, it uses over-collateralization of crypto-assets (like ETH) in a decentralized protocol to simulate price movements of oil using a Chainlink decentralised oracle network.
- Expected classification under MiCAR: Not an ART, because it does not directly reference or have reserves in the underlying commodity (oil); it only simulates it synthetically.
- Outcome of the test: The test incorrectly classifies SOIL as an ART because it references a commodity (oil) in its mechanism.
- Result: False Positive. SOIL would be misclassified as an ART even though it is synthetically backed and does not meet traditional ART definitions.
3. Suggestions for improvement
- Add ART-related scope to the question 10: Is it referencing a value or right, or a combination thereof (as specified under Article 3(1)(5) MiCAR)?
- Include “redemption at par” question for EMTs: Does it always offer redemption at par value?
Rephrase question 7 to reduce ambiguity: Does it purport to maintain stable value against the referenced asset?
Authors: Tobias Albert, Anastasiia Arnoldova