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?
Enoda generally supports the proposed template for providing a clear, fair, and comprehensive explanation of the classification of crypto-assets. However, we believe the template could benefit from several refinements to ensure its applicability across a range of sectors, particularly those involving operational utility tokens, which may serve specialized purposes distinct from traditional financial instruments. Furthermore, tokens that aim to replace cash with a digital currency of any sort, regardless whether they’re referenced by an existing fiat currency, or by the value of an existing commodity, but that have a wider aim to replace cash, would require very specific new regulation as well.
First, it is important to recognize that certain crypto-assets, especially utility tokens used in specialized industries such as energy or supply chain management, primarily serve operational purposes rather than functioning as investment vehicles. These tokens enable decentralized processes, such as grid management or resource optimization, through blockchain technology. Therefore, the template should provide room for issuers to clearly explain the functional role of such tokens, ensuring that they are not subject to regulatory frameworks designed for financial instruments or securities, which may not be appropriate for operational use cases.
Furthermore, while we appreciate the broad classifications established by the regulation, the template could offer more flexibility in distinguishing between different types of tokens, including asset-referenced tokens, e-money tokens, and utility tokens. A nuanced approach will help ensure that operational tokens, which do not pose the same financial risks as other categories, are not overburdened by unnecessary regulatory requirements.
Additionally, considering the increasing relevance of environmental sustainability, particularly in sectors such as energy, the template should allow issuers to detail how their tokens contribute to sustainability goals or reduce environmental impact. This could include an explanation of how the token’s underlying technology supports broader sustainability objectives, such as the integration of renewable energy sources or the promotion of energy efficiency.
By incorporating these adjustments, the template would better serve the diverse range of crypto-assets emerging in today’s markets, fostering innovation while ensuring proportionate regulatory oversight.
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?
Enoda supports the use of the template under Annex B for Articles 17(1) point (b)(ii) and 18(2) point (e) as an important step in ensuring consistency and transparency in the classification of crypto-assets. However, we believe the template would benefit from additional flexibility to accommodate tokens that play specialized operational roles in industries that are rapidly evolving, such as energy management, where Enoda operates.
The regulatory framework currently focuses heavily on financial instruments and crypto-assets designed for investment or monetary exchange. While this is appropriate for many tokens, it is important to recognize that not all tokens fit within these financial categories. Some tokens serve as utility tokens within larger decentralized systems, facilitating operational processes rather than providing financial returns or acting as a medium of exchange. In such cases, applying the same classification and regulatory approach as financial instruments may lead to disproportionate regulatory burdens, which could stifle innovation in these sectors.
For example, Enoda is developing a Web3 platform, Ensemble, which focuses on balancing and optimizing energy grids using decentralized, distributed ledger technology. In this context, Enoda's potential token could be used to coordinate energy flows among distributed energy resources (DERs). This token would not be designed to generate speculative returns or function as an investment vehicle but would instead act as an operational mechanism to facilitate the exchange of information and energy resources. The token could automate demand-response actions, facilitate transactions between energy producers and consumers, and optimize energy distribution within the grid in real time.
In such a scenario, the token’s primary function is operational, enabling real-time adjustments in energy production and consumption to maintain grid stability. If this token were subject to the same classification as financial instruments under the template, it could be wrongly perceived as a speculative asset, and its utility within the energy system could be overshadowed by compliance burdens associated with financial regulations. This could, in turn, inhibit the development and deployment of innovative energy solutions like decentralized grids, where operational tokens are critical for real-time coordination.
An additional example is the European Blockchain Services Infrastructure Legal Signature Application (ELSA), which is part of the EBSI initiative, which is being developed in collaboration with the EUIPO to provide a blockchain-based solution for authenticating digital documents and intellectual property rights (IPR). This project utilizes blockchain tokens to verify and validate digital signatures across the European Union, enhancing legal compliance and the protection of IPR in an efficient, transparent, and secure manner. Here, the token’s primary function is operational, allowing for the secure exchange and verification of digital documents across multiple jurisdictions.
In this scenario, the ELSA token is not designed for financial speculation or investment but instead serves as a utility token that facilitates the validation of digital signatures and ensures the integrity of intellectual property rights across the EU. If this token were subject to the same classification as financial instruments, it could be mistakenly viewed as a speculative asset, leading to compliance requirements that could disrupt the token’s core operational function of improving the efficiency of cross-border document verification. This, in turn, could hinder the development of innovative solutions like ELSA, where utility tokens are critical for ensuring interoperability and legal validity in a digital context.
Thus, while the template in its current form provides a solid foundation, it should allow legal advisors and blockchain developers to clearly articulate the specific use cases and functional attributes of tokens that serve operational purposes. This would ensure that such tokens are not misclassified and subjected to inappropriate regulatory treatment. In the case of Enoda’s potential token, for instance, the ability to explain its core operational role in maintaining energy balance, rather than its financial characteristics, would help regulators and stakeholders better understand its non-speculative, utility-driven purpose.
Additionally, sectors like energy management are often subject to strict national and EU regulations regarding sustainability, emissions, and grid reliability. The template should include fields that allow issuers to link the token's utility to compliance with broader regulatory objectives, such as those related to climate change or energy efficiency. This would help ensure that tokens designed to enhance operational efficiency in critical infrastructure sectors are viewed through an appropriate regulatory lens.
In conclusion, Enoda recommends that the template be expanded to account for crypto-assets that serve primarily operational functions, particularly in sectors like energy, where tokens facilitate complex systems rather than acting as financial instruments. Providing this flexibility will help ensure that such tokens are classified and regulated appropriately, fostering innovation and avoiding unnecessary compliance burdens that could hinder the development of critical infrastructure projects.
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?
While the fields in the template addressing the regulatory status of crypto-assets are generally clear, they may not fully accommodate the complexities of certain crypto-assets, particularly those that operate in highly specialized industries with multi-faceted roles. The current structure of the template works well for straightforward crypto-assets that resemble traditional financial instruments or serve simple purposes such as payment or investment. However, for more complex assets—especially those with significant operational functions in decentralized systems—the template may need to allow for more detailed and nuanced explanations of their regulatory status. Furthermore, as the adoption of Web3.0 grows, especially for infrastructure projects on climate, supply chains and in similar areas, the share of tokens that support operational functions will also increase.
For instance, in electricity distribution systems, a token may be used as part of a decentralized platform that optimizes grid balancing and energy distribution. Such a token might facilitate real-time data exchange between distributed energy resources (DERs) and help manage energy flow to ensure grid stability. In this case, the token’s complexity arises not from its financial attributes but from its role in coordinating energy distribution, automating demand-response actions, and incentivizing the efficient use of energy resources. The token’s primary function is operational, enhancing the performance of the grid rather than serving as a financial instrument. Notably, no financial asset, ARTs or EMTs would be required if this functionality were implemented through a Web2.0 architecture rather than a Web3.0 architecture.
Similarly, in the context of decentralized supply chains, a blockchain-based logistics platform might use tokens to track goods, verify product authenticity, and automate contractual agreements. The token would serve to streamline supply chain processes by verifying checkpoints and automating payments between various stakeholders, thereby enhancing transparency and reducing the administrative burden. Like the energy token example, the complexity of the supply chain token lies in its technological and operational capabilities rather than its financial characteristics, and no financial asset would be involved in an equivalent Web2.0 system.
In both examples, whether in electricity distribution or supply chain management, the tokens serve critical roles in improving efficiency and transparency within their respective systems. However, the current template’s focus on financial regulation may not sufficiently capture the operational complexity or technological innovation these tokens represent. If the legal opinion provided within the template is forced to focus primarily on financial characteristics, it could lead to an oversimplification of these tokens’ roles, potentially misclassifying them under regulatory frameworks that are not appropriate for their primary function.
To ensure a proportionate regulatory response, the template should provide more flexibility for legal advisors to explain how these tokens facilitate operational efficiency and compliance with industry-specific regulations. For example, in the energy sector, tokens could contribute to real-time energy optimization and compliance with sustainability goals, such as reducing emissions and integrating renewable energy sources. In supply chains, tokens could help meet regulations related to product traceability and consumer protection by automating verification processes.
Additionally, the template should allow legal advisors to address the proportionality of regulatory treatment based on the complexity of the token’s structure and function. Tokens that operate within decentralized energy systems or supply chains may require a different regulatory approach than simple payment tokens or investment vehicles. Providing fields where legal advisors can detail these operational roles will help ensure that tokens designed for non-financial purposes are not subjected to inappropriate financial regulations, which could stifle innovation in these sectors.
In conclusion, while the fields in the template are generally clear, expanding them to allow for more detailed explanations of non-financial functions, technological capabilities, and industry-specific complexities would enhance the accuracy of legal opinions. This would help ensure proportionate regulatory treatment for both simple and complex crypto-assets, fostering innovation while maintaining appropriate oversight.
4. Do respondents have any comments on the standardised test?
Enoda generally supports the development of a standardized test for the classification of crypto-assets, as it provides a structured approach to ensuring regulatory consistency across the EU and provides developers with greater certainty about the regulatory treatment of their Web3.0 projects. However, there are several aspects of the test that would benefit from greater flexibility and clarity, especially when applied to more complex or innovative sectors such as energy management, where tokens may serve critical operational roles rather than purely financial or speculative functions.
The test's focus on determining whether a crypto-asset represents a “value” or “right” and whether it can be transferred and stored using distributed ledger technology (DLT) is a useful starting point. However, it is important to recognize that in certain industries, the "value" of a token may not fit neatly within traditional financial definitions. For example, in energy management, a token may facilitate operational functions such as balancing electricity grids or optimizing energy distribution among distributed energy resources (DERs). While the token may hold value within the energy ecosystem, its primary function is not financial speculation or exchange, but rather the facilitation of decentralized, automated energy management. The test should allow for broader interpretations of "value" to account for such use cases, ensuring that tokens serving operational purposes are not unnecessarily subjected to regulatory requirements meant for financial instruments.
Additionally, the test’s reliance on whether the token can be transferred and stored using DLT or similar technologies is well-aligned with the technological reality of many crypto-assets. However, further guidance is needed on how to assess whether a token is truly "non-transferable." While recital (17) of Regulation (EU) 2023/1114 outlines conditions under which a token is considered non-transferable, it is crucial that the test be able to differentiate between tokens that are deliberately designed to remain within a closed system and those intended for broader market participation. In some cases, several interconnected closed systems may collectively create a broader ecosystem where tokens are used across multiple platforms or entities without being openly traded on public markets. Even in such cases, where tokens circulate within a defined and limited ecosystem, it would be appropriate to apply a less intensive level of regulatory oversight compared to tokens actively traded or transferred in open markets. This approach would ensure that tokens serving operational purposes within interconnected but controlled systems are not subjected to disproportionate compliance burdens while still maintaining sufficient regulatory oversight.
Furthermore, the exclusions outlined in Article 2 of Regulation (EU) 2023/1114—particularly in relation to financial instruments, deposits, and insurance products—are well-established and provide a solid foundation for determining whether a crypto-asset falls under MiCA’s scope. However, for crypto-assets that fall outside these categories, more detailed guidance is needed on how to classify tokens that serve hybrid roles, incorporating both operational and financial elements. Moreover, regulatory templates will need to be regularly updated as the Web 3.0 space evolves. In sectors like energy, for example, tokens may facilitate energy trading, but they may also enable grid coordination, demand-response activities, and energy efficiency tracking. The test should allow for a clear distinction between these different functions, ensuring that tokens are not overregulated based solely on one aspect of their utility.
To illustrate this, consider a token used in decentralized energy systems that allows participants to trade surplus electricity while simultaneously optimizing grid stability by enabling real-time responses to changes in energy demand. While the token holds value in facilitating energy trading, its role in coordinating the technical operations of the grid is equally important. The standardized test should ensure that tokens like this are not classified solely based on their financial utility but are instead evaluated holistically, taking into account their operational and technological functions as well.
In conclusion, while the standardized test offers a valuable framework for classifying crypto-assets, Enoda recommends that it be refined and regularly reviewed to provide greater flexibility in evaluating tokens with complex, non-financial roles. By allowing for broader interpretations of "value" and providing clearer guidance on operational tokens that function within closed networks, the test would better reflect the diverse range of applications for crypto-assets, particularly in sectors like energy management, where tokens play a critical role in enabling decentralized, automated systems. This will help ensure proportionate regulatory treatment without stifling innovation in these emerging industries.