European Union

How blockchain can address Austria’s energy crisis

In the future, energy communities should make a greater contribution to the energy transition.

Climate change has become one of the biggest global challenges for humanity. At the same time, the dependence on hydrocarbon energy sources such as coal, oil and natural gas is still strong.

Supply lines around these energy sources are further vulnerable to geopolitical tensions. Due to the current sanctions against Russia, experts now expect rising electricity prices and negative effects on the energy market in Europe.

The Austrian government understands the urgent need for the energy transition and has set the ambitious goal of being climate neutral by 2040. Alternative solutions to fossil energy have been slow to emerge and, for the most part, are not yet efficient enough on a large scale. But there are promising approaches — especially in the form of decentralized renewable energies or blockchain technology in peer-to-peer (P2P) energy trading.

There are already pilot projects in Austria dealing with P2P trading on the energy market. At the forefront are blockchain scale-up Riddle&Code and Austria’s largest energy provider Wien Energie, which founded a joint venture in 2020 called Riddle&Code Energy Solutions.

As of April 1 of this year, Kai Siefert is the new head of the joint venture. He was formerly an IT strategist at Wien Energie and worked on the energy tokenization platform MyPower in Vienna. Cointelegraph auf Deutsch caught up with Siefert to ask how we can combat the energy crisis with the help of blockchain.

From pilot project to solar tokenization

Wien Energie and Riddle&Code have been working together for a long time. Back in 2017, the companies launched the first project called Peer2Peer in Quartier where they tokenized photovoltaic solar systems so that consumers can participate in energy production.

Later, at the end of 2018, when Siefert was still Wien Energie’s IT strategist, his team developed a blockchain strategy together with Astrid Schober, head of IT at Wien Energie, and focused on the topic of energy tokenization with security tokens and utility tokens.

This resulted in the MyPower platform. First, Wien Energy and Riddle&Code tested the decentralized trading of self-generated solar power via blockchain in a smart city project with 100 participants. Everything went smoothly, and in 2021, a tokenization platform for photovoltaic plants was launched. Riddle&Code tokenized the largest solar plant in Austria and gained 1,000 customers who, as part of its advertising campaign, bought energy vouchers issued by Wien Energie in the form of tokens, which could be used to pay electricity bills.

Now MyPower tokenizes solar photovoltaic assets across the whole of Austria, allowing consumers to benefit from partial ownership and invest in renewable energy sources.

Demand for renewable energy is huge

According to Siefert, the concept of energy sharing is very much in demand at the moment. Due to Russia’s invasion of Ukraine and the coronavirus crisis, electricity prices are skyrocketing. Rising energy prices can be mitigated with cheaper renewable energies, smart information technology and energy sharing.

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With blockchain-based energy sharing, jointly generated electricity is fed into the grid, distributed and sold directly to flats — all without an intermediary. Kilowatt-hours not consumed can also be sold to other energy communities, and thus, consumers earn or save money.

Energy sharing can enable direct energy trading between energy consumers (energy producers and end-consumers), who can use this approach to take control of their generation and demand. People who rent instead of owning their homes can actively participate in the energy transition and benefit from the proceeds. This gets consumers more involved in their own generation and puts local value creation at the center.

“You don’t need to buy natural gas from Russia or oil from Saudi Arabia to create energy here in Europe,” Siefert said. “The sun comes virtually for free and reliably produces electricity. But many people can’t participate because they don’t have their own house, but live in a rented flat or simply don’t have the means to buy a large solar system. However, we can divide these plants into small digital asset tokens so that private investors with little capital can also participate.”

Renewable energies “are coming into focus”

In Austria, there are already small renewable energy communities such as Erneuerbare-Energie-Gemeinschaften (EEG). Such energy communities (in Austria and according to the Renewable Energy Expansion Act) are nonprofit-orientated legal entities intended to decentralize the generation, distribution and consumption of renewable energy mainly for the public benefit. Such EEGs still play a small role in production, local and regional distribution, and consumption of renewable energy and are often not very profitable.

However, things are starting to develop. According to Siefert, the demand for EEGs has already increased enormously due to rising energy prices, and Riddle&Code Energy Solutions offers technical solutions for setting up and onboarding such EEGs. “We can also connect them to decentralized marketplaces with our system,” Siefert said. This is already possible with the Renewable Energy Expansion Act, which has been in force since 2021 and is a European Union directive that has been transposed into national law.

Siefert noted an “increasing interest in interesting in renewable energies” — in Austria, Europe and worldwide. Companies working in the field of renewable energies “are now coming into focus,” as they are benefiting “from the large investments favored by climate policy worldwide,” Siefert said.

Real-time data signed and encrypted on the blockchain

At the moment, P2P energy trading is not yet allowed in Austria. Everything works on the basis of the current electricity market infrastructure, and billing data is made available by the grids 24 hours after it has been measured.

But Riddle&Code Energy Solutions can already take this data in real-time. A dongle that can be connected directly to the smart meter reads data live from the customer interface and sends it via a trusted gateway — signed and fully encrypted on the blockchain. From there, this data can be read out immediately. Customers can see every quarter of an hour how their credit grows in kilowatt-hour tokens.

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This data cannot be used for billing yet, but it helps to incentivize the right consumption behavior. Thanks to such data, the customer can see how much green energy they have on the grid from the community installation and, for example, use this time to turn on the washing machine or charge an electric car. This, in turn, has an indirect effect on the bill because customers then pay less if they use more electricity from their own shared forms.

“Our goal is that everyone can participate in energy sharing,” Siefert said. “But private P2P trading is currently not possible in Austria until legal regulation is created. That is why I would like to see more freedom here from the government side and more speed in the expansion of renewables. Austria can become one of the leading nations in the EU and worldwide in terms of P2P energy trading and the development of energy communities.”

This is a short version of the interview with Kai Siefert. You can find the full version here (in German).

Regulators across the ocean discuss stablecoins and MiCa at joint forum

The representatives of key regulatory bodies on both sides of the Atlantic have met to exchange their experiences.

It’s not every week that regulators from both sides of the Atlantic ocean come together to discuss cryptocurrencies. But that’s what happened last week, with the European Union and United States counterparts sharing their thoughts on stablecoins, central bank digital currencies (CBDC) and the Markets in Crypto Assets (MiCA) proposal.

The representatives of the European Commission, the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and several other EU-level bodies have met with officials from the United States Department of the Treasury, Commodity Futures Trading Commission (CFTC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC) and other American colleagues to discuss the regulatory routine.

The meeting took place July 13-14 in the form of the EU–U.S. Joint Financial Regulatory Forum. Digital finance became only one out of six key topics, alongside sustainable finance and climate-related financial risks, regulatory developments in banking and insurance, Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) and other immediate issues.

Two sides discussed recent developments regarding stablecoins, and the EU delegation updated U.S. counterparts on the provisional agreement reached on the MiCA regulation. The U.S., in its turn, provided an overview of its work on crypto assets, including stablecoins.

As the official report mentions, without any specifications, the exchange also “took stock of discussions around the development of potential central bank digital currencies (CBDCs).”

On June 30, Stefan Berger, European Parliament member and rapporteur for the MiCA regulation, revealed that a “balanced” deal on the regulatory package had been struck, which has made the European Union the first continent with crypto-asset regulation. While the package dropped a de facto prohibition of the proof-of-work (PoW) mining, it still contains some controversial guidelines, especially regarding stablecoins .

On Tuesday, Senators Cynthia Lummis and Kirsten Gillibrand revealed that there is a slim chance that their long-anticipated “crypto bill” would be pushed through the Senate this year.

Demand for widely used euro stablecoin is huge, says DeFi expert

The U.S. company Circle is launching a regulated stablecoin that is pegged to the euro, but what does this mean for the eurozone?

The market capitalization of Tether (USDT), a United States dollar-pegged stablecoin, is currently over $65 billion. USD Coin (USDC), another stablecoin backed by the U.S. dollar, clocks in near $55 billion. Some reports estimate that the total market cap of dollar-backed stablecoins is over $160 billion.

Despite this success of dollar-based stablecoins, there has not been a euro stablecoin that is even remotely comparable in size. By the end of June, the U.S.-based company Circle announced that it will launch its own euro stablecoin, Euro Coin (EUROC), on the Ethereum blockchain. With a euro-based stablecoin, uncomplicated euro transfers will be possible worldwide in the future, as is currently the case with the U.S. dollar.

Instead of the eurozone-based business, Circle has opted to issue the planned euro stablecoin via the U.S. bank Silvergate. But, is it permissible for a digital coin tied to the euro to be issued outside the eurozone? How will European regulators react? Can Circle simply ignore the upcoming Markets in Crypto-Assets Regulation (MiCA) and operate the stablecoin from outside the European Union? And, why is there still no major euro stablecoin?

Cointelegraph auf Deutsch asked these questions to Patrick Hansen. The former head of blockchain at the German digital association Bitkom was, until recently, head of strategy and business development at wallet provider Unstoppable Finance. Now Hansen advises companies such as Presight Capital and the Blockchain Founders Group and has a hotline to the European Parliament.

Euro stablecoin issued outside the EU

The European Central Bank (ECB) is keeping its options open on whether and when to launch a digital euro. However, it’s still not really clear to Patrick Hansen what exactly the ECB wants to achieve with a central bank-issued digital euro. “Whether it is to become a kind of digital cash or rather a new payment option. That’s why it’s so difficult to evaluate the project,” he said.

Fundamentally, though, Hansen thinks that private companies, led and overseen by policymakers, are better suited to bring innovation to the current financial system. According to him, European banks will be much more active in the coming years: “Right now, I think two things, in particular, are holding them back. First, banks want to wait for MiCA regulation, and second, the ECB’s specific plans for a digital euro are still not clear.”

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That’s why Hansen is a big fan of Circle’s decision to launch a euro stablecoin. The euro accounts for almost 40% of global SWIFT payments, 20% of global foreign reserves, but only 0.2% of global stablecoin market capitalization. “It is in the EU’s and the eurozone’s interest to change that. EUROC is a promising step in that direction,” Hansen said.

MiCA regulation is unavoidable

In Hansen’s opinion, MiCA automatically kicks in here since it’s a euro stablecoin. Circle cannot avoid applying for the appropriate licenses in the EU and having the EUROC supervised by EU authorities. But this is, Hansen thinks, also Circle’s intention.

According to Hansen, Circle will probably set up a European legal entity and then apply for an e-money license, which is a prerequisite for issuing e-money tokens. Depending on how widely the coin is adopted, EUROC already falls into the category of “Significant e-money-tokens” in the MiCA, which again entails higher capital reserves, liquidity and interoperability requirements.

“Circle could also theoretically use the liability umbrella of an existing e-money institution and cooperate with it. That would be a slightly more complex process operationally and legally,” Hansen explained, adding:

Circle’s euro stablecoin is supposed to be backed one-to-one by euros deposited in bank accounts. However, the reserves are held by the U.S. bank Silvergate while Circle itself is based in the United States. How then can the new euro coin be regulated with the upcoming MiCA regulation?

“In terms of USDC, Circle’s primary stablecoin pegged to the U.S. dollar, Circle could refrain from applying for a MiCA license. The pros and cons, for example, that unregulated stablecoins may no longer be listed by regulated crypto trading venues in the EU, need to be weighed here. However, I don’t see any way for EUROC to circumvent MiCA.”

According to Hansen, regulation can promote legal certainty, trust and adoption, but on the other hand, it can create high barriers to market entry. In the area of stablecoins and nonfungible tokens (NFTs), MiCA goes a step too far and threatens to become a major hurdle for many companies, Hansen said.

Still no significant euro stablecoin

Also playing a role are regulated challenges, the weakness of the euro and the first-mover advantage of U.S. dollar-based stablecoins like USDT and USDC. The network effects of stablecoins are so significant that many Europeans also use USD stablecoins for convenience. In addition, the volatility of crypto assets is usually high and many EU retail investors are comparatively unconcerned about the risk of U.S. dollar usage in the forex market. Hansen said:

Existing euro stablecoins seem to be used less and, according to Hansen, there are several reasons for this. Negative interest rates on bank deposits in the eurozone have made reserve-backed stablecoin business models virtually impossible.

“Fundamentally, however, the demand for a widely used euro stablecoin is huge and many of the points above will get better in the coming months.”

Whether the EUROC will become a big seller similar to the USDC will be decided by the market. Demand, especially from larger financial institutions, for a trustworthy and regulatory-approved euro stablecoin is high, Hansen said.

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However, he is sure that euro stablecoins won’t be able to keep up with U.S. dollar stablecoins, stating the euro can’t do that even outside the crypto world for various reasons. But, those euro stablecoins that clear MiCA hurdles will see strong adoption and usage while increasing the overall market share of euro stablecoins, Hansen said, adding:

“USDC is the undisputed number-one stablecoin in the decentralized finance market. Therefore, there is a good chance that EUROC will also play a good role there. Anyway, I would be happy to see more and more euro-based liquidity pools and euro investment opportunities in the DeFi space.”

Crypto.com secures regulatory license in Italy

The mobile-first cryptocurrency exchange recently received regulatory approvals to operate in Greece, Singapore and Dubai.

Digital asset exchange Crypto.com has received approval from Italian regulators to offer its services in the Mediterranean country — a move the company says aligns with its vision of “building lasting growth in the region.”

On Tuesday, Crypto.com announced that it had officially received registration and regulatory approval from Organismo Agenti e Mediatori, also known as OAM, Italy’s primary Anti-Money Laundering regulator. The approval effectively grants Crypto.com the ability to offer its products and services to Italian customers.

Buongiorno Italia

We’re proud to announce that https://t.co/vCNztATSCO has secured regulatory approval in Italy, from the Organismo Agenti e Mediatori (OAM).

Full details https://t.co/JNfY5DNBtA pic.twitter.com/os6HpjsE6f

— Crypto.com (@cryptocom) July 19, 2022

Crypto.com claims to have over 50 million customers around the world. In recent months, the exchange received regulatory licenses to operate in Greece, Singapore and Dubai .

Italy is the European Union’s third-largest market by gross domestic product, and crypto services providers are targeting the country for expansion. As reported by Cointelegraph, United States-based crypto exchange Coinbase recently secured OAM approval to begin operating in the Mediterranean country. In May, Binance was given the OAM green light to serve the Italian market.

Although Italy’s regulatory approach to crypto is far from uniform, the government has been keen to promote the adoption of blockchain technology. Earlier this month, Italy’s Ministry of Economic Development announced that some blockchain projects could qualify for up to $46 million in government subsidies.

Meanwhile, in June, Italy’s primary stock exchange, Borsa Italiana, listed a so-called “Bitcoin-thematic” exchange-traded fund, which provides BTC exposure to Italian institutional investors and retirement planners.

Burdensome but not a threat: How new EU law can affect stablecoins

Apart from the stringent requirements for stablecoin issuers, there are other areas of concern in the upcoming EU regulation.

The year 2022 saw not only drastic dips in leading cryptocurrencies and financial markets in general but also major legislative frameworks for crypto in prominent jurisdictions. And while the “crypto bill,” co-sponsored by United States senators Cynthia Lummis and Kirsten Gillibrand, still has a long way to go, its European counterpart, the Markets in Crypto-Assets (MiCA), had finally made it through Tripartite negotiations.

On June 30, Stefan Berger, European Parliament member and rapporteur for the MiCA regulation, revealed that a “balanced” deal had been struck, which has made the European Union the first continent with crypto-asset regulation. Is the deal really that “balanced,” and how could it affect crypto at large and some of its most important sectors in particular?

No direct ban, but tighter scrutiny

The industry met the latest MiCA draft with a mixed response — the cautious optimism of some experts was counterweighted by the diagnosis of “unworkability” on Twitter. While the package dropped one of its most alarming sections, a de facto prohibition of the proof-of-work (PoW) mining, it still contains a number of controversial guidelines, especially regarding stablecoins.

Ironically, in its assessment of the risks posed by stablecoins to the economic system, the European Commission has chosen a combination of “moderate” options, reserving from the outright ban, which is labeled in the document as Option 3:

“Option 3 would not be consistent with the objectives set at the EU level to promote innovation in the financial sector. Furthermore, Option 3 could leave some financial stability risks unaddressed, should EU consumers widely use ‘stablecoins’ issued in third countries.”

The chosen approach qualifies stablecoins as a close analog of the EU’s definition of “e-money” but doesn’t see the existing Electronic Money and Payment Services directives as fit for addressing the issue. Hence, it suggests a set of new “more stringent” guidelines.

The most outstanding requirement to the issuers of “asset-referenced tokens” is 2% of the average amount of the reserve assets, which would be obligatory for issuers to store in their funds separately from reserves. That would make Tether, which claims to have over $70 billion in reserves, hold a separate $1.4 billion to comply with the requirement. With Circle’s amount of reserves ($55 billion), that number will stand at $1.1 billion.

Another benchmark that caused an uproar from the community is a daily cap for transactions, set at 200 million euros. With 24-hour daily volumes of Tether (USDT) sitting at $50.40 billion (48.13 billion euros) and USD Coin (USDC) at $5.66 billion (5.40 billion euros), such a standard would inevitably lead to a legal controversy.

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Apart from that, the guidelines set several standard formal procedures for the stablecoin issuers such as the obligation to register legal entities in the EU and provide quarterly reports and white papers with mandatory disclosure requirements.

Beyond stablecoins

Some don’t consider the stringent MiCA guidelines for stablecoins to be a major threat. Candace Kelly, chief legal officer and head of policy and government affairs at the Stellar Development Foundation, believes that, while being far from perfect, the framework will help the crypto industry to better understand where the EU stands. She told Cointelegraph:

“Burdensome, yes. An existential threat, no. A stablecoin should be able to live up to its name, and it’s clear that the EU was trying to accomplish this by setting standards that mandate accountability.”

Budd White, chief product officer and co-founder of crypto compliance firm Tacen, told Cointelegraph that the concerns about the cap on daily transactions may present an obstacle to mass institutional adoption in Europe. However, he doesn’t find the 2% demand particularly worrisome, seeing it as a step to balance trust and privacy and provide a layer of insurance for investors:

“It may limit the ability of some small players to enter the market, but it will introduce a requisite amount of trust into the system — which is a significant improvement.”

At the end of the day, White considers MiCA a hugely important step forward for crypto regulation in the EU, even though some of the industry’s anxieties are justified. He draws attention to another section of the regulation, namely the guidelines for nonfungible tokens (NFTs). The current definition most closely likens NFTs to regulated securities, leaving wiggle room for the interpretation of NFT art and collectibles.

In Kelly’s opinion, there is yet another area of concern in MiCA aside from stablecoins — the crypto-assets services provider (CASP) verification requirements. While the framework avoided including personal wallets in its scope, Kelly suspects the regime to verify ownership of personal wallets by CASPs and then apply risk-based Know Your Customer and Anti-Money Laundering procedures will end up being quite burdensome for CASPs as they will have to engage with individual users, rather than custodial entities, to meet the requirements:

“Our hope is that we will see new and innovative solutions from the industry come forward that help ease this burden.”

Michael Bentley, CEO and co-founder of London-based lending protocol Euler, is also positive about MiCA’s ability to support innovation and reassure the market. Nevertheless, he has his doubts about the individual reporting requirements for transfers over 1,000 euros, which could be too burdensome for many retail crypto investors:

“Non-compliance, whether intentional or otherwise, could be used to create the impression that ordinary people are involved in nefarious activities. It is unclear what evidence base was used to determine the 1,000 euro cut-off or if mass surveillance of ordinary citizens is needed to tackle the problem of money laundering.”

A threat to the digital euro?

If not an outright existential threat at this point, could the European guidelines for stablecoins demonstrate the EU’s desire to eventually outplay the private digital currencies with its own project of the digital euro?

The European Central Bank launched its central bank digital currency (CBDC) two-year investigation phase in July 2021, with a possible release in 2026. A recent working paper that suggested a “CBDC with anonymity” may be preferable compared to traditional digital payments drew a wave of public criticism.

White acknowledged that he wouldn’t be surprised if the EU’s goal is to taper out the competition to create its own CBDC but doesn’t believe it could be successful. In his opinion, it is too late, as the independent stablecoins have gone too mainstream to be cut out from the market. At the same time, a viable government-backed digital currency has yet to be created and that development will require trial and error:

“Despite pressure from the European Central Bank to create its own CBDC, I expect stablecoins to remain pertinent to both individual and institutional investors.”

For Dixon, this should not be an either-or conversation. She sees the best-case scenario as the one in which stablecoins and CBDCs co-exist and are complementary. For cross-border payment use cases, central banks will need to work together on standardization to allow for interoperability and reduce the number of intermediaries necessary to process a transaction.

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In the meantime, the global adoption of stablecoins will continue to develop. As a result, we should expect more consumers and small businesses to use stablecoins to send and receive cross-border payments due to affordability and speed of transactions:

“Different forms of money serve different individual preferences and needs. By augmenting the existing wire, credit card, and cash system with innovations like CBDCs and stablecoins we can begin to create financial services that serve everyone.”

MiCA and ToFR: The EU moves to regulate the crypto-asset market

The EU crypto regulation: With the main topics approved, who is affected and what are the possible impacts on the crypto industry?

On the last day of June, the European Union reached an agreement on how to regulate the crypto-asset industry, giving the green light to Markets in Crypto-Assets (MiCA), the EU’s main legislative proposal to oversee the industry in its 27 member countries. A day earlier, on June 29, lawmakers in the member states of the European Parliament had already passed the Transfer of Funds Regulation (ToFR), which imposes compliance standards on crypto assets to crack down on money laundering risks in the sector.

Given this scenario, today we will further explore these two legislations that, due to their broad scope, can serve as a parameter for the other Financial Action Task Force (FATF) members outside of the 27 countries of the EU. As it’s always good to understand not only the results but also the events that led us to the current moment, let’s go back a few years.

The relation between the FATF and the newly enacted EU legislation

The Financial Action Task Force is a global intergovernmental organization. Its members include most major nation-states and the EU. The FATF is not a democratically elected body; it is made up of country-appointed representatives. These representatives work to develop recommendations (guidelines) on how countries should formulate Anti-Money Laundering and other financial watchdog policies. Although these so-called recommendations are non-binding, if a member country refuses to implement them, there can be serious diplomatic and financial consequences.

Along these lines, the FATF released its first guidelines on crypto assets in a document published in 2015, the same year when countries like Brazil started debating the first bills on cryptocurrencies. This first document from 2015, which mirrored the existing policies of the United States regulator the Financial Crimes Enforcement Network, was reassessed in 2019, and on October 28, 2021, a new document titled “Updated Guidance for a risk-based approach to virtual assets and VASPs” came out containing the current FATF guidelines on virtual assets.

This is one of the reasons why the EU, the U.S. and other FATF members are working hard to regulate the crypto market, in addition to the already known reasons such as consumer protection, etc.

If we look, for example, at the 29 of 98 jurisdictions whose parliaments have already legislated on the “travel rule,” all have followed the FATF’s recommendations to ensure that service providers involving crypto assets verify and report who their customers are to the monetary authorities.

The European digital financial package

MiCA is one of the legislative proposals developed within the framework of the digital finance package launched by the European Commission in 2020. This digital finance package has as its main objective to facilitate the competitiveness and innovation of the financial sector in the European Union, to establish Europe as a global standard setter and to provide consumer protection for digital finance and modern payments.

In this context, two legislative proposals — the DLT Pilot Regime and the Markets in Crypto- Assets proposal — were the first tangible actions undertaken within the framework of the European digital finance package. In September 2020, the proposals were adopted by the European Commission, as was the Transfer of Funds Regulation.

Such legislative initiatives were created in line with the Capital Markets Union, a 2014 initiative that aims to establish a single capital market across the EU in an effort to reduce barriers to macroeconomic benefits. It should be noted that each proposal is only a draft bill that, to come into force, needs to be considered by the 27 member countries of the European Parliament and the Council of the EU.

For this reason, on June 29 and June 30, two “interim” agreements on ToFR and MiCA, respectively, were signed by the political negotiation teams of the European Parliament and the Council of the European Union. Such agreements are still provisional, as they need to pass through the EU’s Economic and Monetary Affairs Committee, followed by a plenary vote, before they can enter into force.

So, let’s take a look at the main provisions agreed to by the political negotiation teams of the European Parliament and the European Council for the crypto market (cryptocurrencies and asset-backed tokens such as stablecoins).

Main “approved” topics of the Transfer of Funds Regulation

On June 29, the political negotiation teams of the European Parliament and the Council of the European Union agreed on provisions of the ToFR on the European continent, also known as the “travel rules.” Such rules detailed specific requirements for crypto asset transfers to be observed between providers such as exchanges, unhosted wallets (such as Ledger and Trezor) and self-hosted wallets (such as MetaMask), filling a major gap in the existing European legislative framework on money laundering.

Among what has been approved, following the FATF recommendation line, the main topics are as follows: 1) All crypto asset transfers will have to be linked to a real identity, regardless of value (zero-threshold traceability); 2) service providers involving crypto assets — which the European legislation call Virtual Asset Service Providers, or VASPs — will have to collect information about the issuer and the beneficiary of the transfers they execute; 3) all companies providing crypto-related services in any EU member state will become obliged entities under the existing AML directive; 4) unhosted wallets (i.e., wallets not held in custody by a third party) will be impacted by the rules because VASPs will be required to collect and store information about their customers’ transfers; 5) enhanced compliance measures will also apply when EU crypto asset service providers interact with non-EU entities; 6) regarding data protection, travel rules data will be subject to the robust requirements of the European data protection law, General Data Protection Regulation (GDPR); 7) the European Data Protection Board (EDPB) will be in charge of defining the technical specifications of how GDPR requirements should be applied to the transmission of travel rules data for cryptographic transfers; 8) intermediary VASPs that perform a transfer on behalf of another VASP will be included in the scope and will be required to collect and transmit the information about the initial originator and the beneficiary along the chain.

Here, it is important to note that European ToFR seems to have fully followed the recommendation enshrined in FATF Recommendation 16. That is, it is not enough for Virtual Asset Service Providers to share customer data with each other. Due diligence must be performed on the other VASPs with which their customers transact, such as checking whether other VASPs perform Know Your Customer checks and have an Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) policy, or facilitate transactions with high-risk counterparties.

In addition, this agreement on the ToFR must be approved in parallel by the European Parliament and Council prior to publication in the Official Journal of the EU, and will commence no later than 18 months after it enters into force — without having to wait for the ongoing reform of the AML and counter terrorism directives.

Main “approved” points of the Markets in Crypto-Assets

MiCA is the key legislative proposal regulating the crypto sector in Europe, although it is not the only one within the European digital finance package. It is the first regulatory framework for the crypto-active industry on a global scale, as its approval imposes rules to be followed by all 27 member countries of the bloc.

Ich bin mir sicher, MiCA ist ein europäischer Erfolg und globaler Standardsetzer. Danke an das Verhandlungsteam @McGuinnessEU /3 pic.twitter.com/bSJh10OY61

— Stefan Berger (@DrStefanBerger) June 30, 2022

As already mentioned, negotiators from the EU Council, the Commission and the European Parliament, under the French presidency, reached an agreement on the supervision of the Markets in Crypto-Assets (MiCA) proposal during the June 30 political trialogue.

The key points approved in this agreement are as follows:

Both the European Securities and Market Authority (ESMA) and the European Bank Authority (EBA) will have intervention powers to prohibit or restrict the provision of Virtual Asset Service Providers, as well as the marketing, distribution or sale of crypto assets, in case of a threat to investor protection, market integrity or financial stability.
ESMA will also have a significant coordination role to ensure a consistent approach to the supervision of the largest VASPs with a customer base above 15 million.
ESMA will be tasked with developing a methodology and sustainability indicators to measure the impact of crypto assets on the climate, as well as classifying the consensus mechanisms used to issue crypto assets, analyzing their energy use and incentive structures. Here, it is important to note that recently, the European Parliament’s Committee on Economic and Monetary Affairs decided to exclude from the MiCA (by 32 votes to 24) proposed legal provision that sought to prohibit, in the 27 EU member countries, the use of cryptocurrencies powered by the “proof-of-work” algorithm.
Registration of entities based in third countries, operating in the EU without authorization, will be established by ESMA based on information submitted by competent authorities, third country supervisors or identified by ESMA. Competent authorities will have far-reaching powers against listed entities.
Virtual Asset Service Providers will be subject to robust Anti-Money Laundering safeguards.
EU VASPs will have to be established and have substantive management in the EU, including a resident director and registered office in the member state where they apply for authorization. There will be robust checks on management, persons with qualifying holdings in the VASP or persons with close ties. Authorization should be refused if AML safeguards are not met.
Exchanges will have liability for damages or losses caused to their customers due to hacks or operational failures that they should have avoided. As for cryptocurrencies such as Bitcoin, the brokerage will have to provide a white paper and be liable for any misleading information provided. Here, it is important to know the difference between the types of crypto assets. Both cryptocurrencies and tokens are types of crypto assets, and both are used as a way to store and transact value. The main difference between them is logical: cryptocurrencies represent “embedded” or “native” transfers of value; tokens represent “customizable” or “programmable” transfers of value. A cryptocurrency is a “native” digital asset on a given blockchain that represents a monetary value. You cannot program a cryptocurrency; that is, you cannot change the characteristics of a cryptocurrency, which are determined in its native blockchain. Tokens, on the other hand, are a customizable/programmable digital asset that runs on a second or third generation blockchain that supports more advanced smart contracts such as Ethereum, Tezos, Rostock (RSK) and Solana, among others.
VASPs will have to segregate clients’ assets and isolate them. This means that crypto assets will not be affected in the event of a brokerage firm’s insolvency.
VASPs will have to give clear warnings to investors about the risk of volatility and losses, in whole or in part, associated with crypto-actives, as well as comply with insider trading disclosure rules. Insider trading and market manipulation are strictly prohibited.
Stablecoins have become subject to an even more restrictive set of rules: 1) Issuers of stablecoins will be required to maintain reserves to cover all claims and provide a permanent right of redemption for holders; 2) the reserves will be fully protected in the event of insolvency, which would have made a difference in cases like Terra.

First introduced in 2020, the MiCA proposal went through several iterations before reaching this point, with some proposed legislative provisions proving more controversial than others, such as NFTs remaining outside the scope but being able to be reclassified by supervisors on a case-by-case basis. That is, nonfungible tokens have been left out of the new rules — although, in the MiCA settlement discussions, it was pointed out that NFTs may be brought into the scope of the MiCA proposal at a later date.

In the same vein, DeFi and crypto lending were left out in this MiCA agreement, but a report with possible new legislative proposals will have to be submitted within 18 months of its entry into force.

As for stablecoins, a ban on them was considered. But, in the end, the understanding remained that banning or fully limiting the use of stablecoins within the EU would not be consistent with the goals set at the EU level to promote innovation in the financial sector.

Final considerations

Shortly after the ToFR and MiCA agreements were reported, some criticized the ToFR, pointing out, for example, that while legislators had done their part, the approved origin and recipient identification measures will only reach central bank digital currencies, but not privacy-focused blockchain networks like Monero and Dash.

Others have argued for the need for a harmonized and comprehensive framework like the MiCA proposal, which brings regulatory clarity and boundaries for industry players to be able to operate their businesses safely across the various EU member countries.

Do you think European policymakers have been able to use this opportunity to build a solid regulatory framework for digital assets that promotes responsible innovation and keeps bad actors at bay? Or do you think that new means of transactions will emerge to impede the traceability of crypto assets with zero threshold? Do you see a need for regulation to prevent the loss of more than $1 trillion in value of the digital asset industry in recent weeks caused by the announced risk of algorithmic stablecoins? Or do you believe that market self-regulation is sufficient?

It is true that market adjustment is shaking up many scammers and fraudsters. But unfortunately, it is also hurting millions of small investors and their families. Regardless of positioning, as an industry, the crypto sector needs to be mindful of accountability to users, who can range from sophisticated investors and technologists to those who know little about complex financial instruments.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Tatiana Revoredo is a founding member of the Oxford Blockchain Foundation and is a strategist in blockchain at Saïd Business School at the University of Oxford. Additionally, she is an expert in blockchain business applications at the Massachusetts Institute of Technology and is the chief strategy officer of The Global Strategy. Tatiana has been invited by the European Parliament to the Intercontinental Blockchain Conference and was invited by the Brazilian parliament to the public hearing on Bill 2303/2015. She is the author of two books: Blockchain: Tudo O Que Você Precisa Saber and Cryptocurrencies in the International Scenario: What Is the Position of Central Banks, Governments and Authorities About Cryptocurrencies?

Terra crash highlights stablecoin risk to financial stability: ECB

A recent ECB report says stablecoins are not practical as a mode of payment and their current form isn’t fit for use in the real economy.

The European Central Bank (ECB) has released a report analyzing the growth of the cryptocurrency market over the past decade and the risks it poses to the existing financial system.

A section of the report dedicated to stablecoins discussed the central role that it plays in the current ecosystem. Stablecoins are increasingly used to interlink various blockchain networks and play a critical role in offering liquidity to the decentralized finance (DeFi) ecosystem.

The report further analyzed whether these stablecoins could find a place in the traditional financial system, but concluded that a lack of regulatory oversight added to the recent downfall of algorithmic stablecoins ecosystems such as Terra (LUNA), now called Terra Classic (LUNC),indicates the contagion effects such stablecoins could have on the financial system. An excerpt from the report read:

“The largest stablecoins serve a critical function for crypto-asset markets’ liquidity, this could have wide-ranging implications for crypto-asset markets if there is a run-on or failure of one of the largest stablecoins.”

It was not just the algorithmic stablecoins that faced the crisis during the crypto market crash in May, even centralized stablecoin Tether (USDT) lost its peg for a while and saw nearly 10% in outflows.

The ECB also shot down the idea of using stablecoins as a means of payment, claiming these are not practical as the speed and cost as well as their redemption terms and conditions have proven “inadequate for use in real economy payments.”

The ECB recommended appropriate supervisory and regulatory measures to ensure stablecoins don’t pose a risk to financial stability in European countries. However, the report did note that stablecoin penetration in the region is limited, given that European payment service providers have not been very active in stablecoin markets thus far.

The European Union recently approved the Markets in Crypto-Assets (MiCa) framework that offers guidance for crypto asset service providers (CASPs) to operate within the Europe region. The provisional agreement includes rules that will cover issuers of unbacked crypto assets, stablecoins, trading platforms and crypto-wallets.

3/13 Large stablecoins will be subject to strict operational and prudential rules, with restrictions if they are used widely as a means of payment, and a cap of 200€millions in transactions/day.

— Ernest Urtasun (@ernesturtasun) June 30, 2022

The ECB aims to curtail stablecoin issuance to e-money and credit institutions to ensure that a Terra-like incident doesn’t lead to investors losing billions of dollars.

Belgian regulator reviews crypto asset classifications while awaiting harmonization

The Belgian Financial Services and Markets Authority created a chart to differentiate crypto asset securities, investment instruments and financial instruments.

The Financial Services and Markets Authority (FSMA), the Belgian regulator, is seeking comments on its communication on the classification of crypto assets as securities, investment instruments or financial instruments. Aimed at issuers, offerors and service providers, the agency’s communication will serve as guidance to the existing order until European regulatory harmonization is achieved.

The communication is meant to address frequently asked questions and is not exhaustive. It is accompanied by a stepwise chart to help its readers determine the classification of an asset.

Crypto assets that are incorporated into an instrument, as is generally the case for assets that are exchangeable or fungible, may be classified as securities under the European Union (EU) Prospectus Regulation or as investment instruments under the EU Prospectus Law. In those cases, MiFID (Markets in Financial Instruments Directive) rules of conduct apply.

If an asset has no issuer, as in the case of Bitcoin (BTC) or Ether (ETH), where the instruments are created by a computer code that does not give rise to a legal relationship, then in principle the Prospectus Regulation, Prospectus Law and MiFID rules do not apply. When the European Union Regulation on Markets in Crypto Assets (MiCA) takes effect, trading platforms will be required to issue white papers for issuer-less tokens.

The classification chart is straightforward, if not conclusive. An asset incorporated into instruments that represents the rights equivalent of a share in profits or losses or a payment is a security if it is transferable and an investment instrument if nontransferable. If the asset represents the right to delivery of a service or product, it is an investment instrument if it has investment characteristics, according to case-by-case analysis.

FSMA also warned that, regardless of the classification of an asset, it will be subject to additional laws as well, such as rules governing virtual asset service providers. Comments on the communication and chart are welcome through July 31.

Russians banned from accessing Bitmex within European Union

Russian citizens or residents will no longer be able to access BitMEX services from the European Union after July 11, 2022.

Major cryptocurrency exchange BitMEX is working to increase compliance with the European sanctions against Russia by preparing to enforce major restrictions for its Russian users.

BitMEX is changing its restricted jurisdictions policy to be compliant with various restrictive measures of the European Union, Cointelegraph has learned.

The BitMEX crypto exchange notified a group of potentially affected users about the upcoming changes via email on Monday.

According to an email seen by Cointelegraph, Russian citizens or residents will no longer be able to access BitMEX services from the European Union after July 11, 2022. That means that such users will not be able to log into their account or access any services from the European Union, unless an “exception applies.”

The new restrictions do not apply to Russian citizens or residents accessing BitMEX services from the EU who are also residents in the EU or Switzerland. Dual citizens of the EU or Switzerland who reside outside Russia will also not be affected, the email notes.

“If you are a resident in the EU or Switzerland or a dual citizen of the EU or Switzerland and reside outside Russia, you may submit additional information to apply for an exemption and continue to access our Services from the EU,” the statement said.

The measure targets all types of traders, including persons trading on behalf of any legal persons, while they access BitMEX from the EU, as well as legal persons established in Russia, whose traders access the services from the EU.

The announcement doesn’t point to any impact on Russian customers accessing BitMEX services from Russia.

BitMEX’s latest restrictions against Russians in the EU arrived after a wave of major exchanges like Binance announced restrictions for Russian users. The majority of such restrictions came in the first two months after Russian President Vladimir Putin announced the “special military operation” in Ukraine on Feb. 24.

MiCa, AMLA and EU’s ‘wild west’ problem: Law Decoded, June 27-July 4

The Markets in Crypto-Assets passed the Tripartite negotiations, while the European Union anticipates a new body for AML regulation.

According to the European parliament member and rapporteur for the Markets in Crypto-Assets (MiCA) regulation Stefan Berger, the deal on landmark pan-European Union regulation had been finally struck amid the Tripartite negotiations. It “will put an end to the crypto wild west,” as French Minister for the Economy Bruno Le Maire hopes. Still, while raising a modest optimism among some stakeholders, MiCa’s final draft will surely make life harder for others.

A prime example here is the case with stablecoins, which would get a daily transaction cap of 200 million euros under the new regulation. With Tether (USDT) and USD Coin’s (USDC) 24-hour daily volumes standing at 48.13 billion euros and 5.40 billion euros, respectively, the new guidelines could be interpreted as a sort of indirect ban on stablecoins. The provisional agreement will also see crypto asset providers (CASPs) needing authorization in order to operate in the EU, with the largest CASPS to be monitored by the European Securities and Markets Authority (ESMA).

European lawmakers clearly don’t like a “wild west” — to the point when they’re attaching the variations of this metaphor to almost anything they deem to need a fix. The same last week, European Parliament member Ernest Urtasun claimed to put an end to the “wild west of unregulated crypto” with a European Council agreement to form an Anti-Money Laundering (AML) body that will have the authority to supervise certain CASPs. The new regulator would probably get an obvious name of AMLA.

Surprise twist in Iowa

Two weeks between being fined for selling the unregistered securities and getting the very license it lacked — that’s what happened with a crypto lending platform BlockFi in the state of Iowa. The new license is a glimmer of good news for BlockFi, which was among the lending firms forced to liquidate some of the positions from venture firm Three Arrow Capital (3AC), with the latter unable to meet a margin call on its Bitcoin borrowings.

Grayscale goes to court

Grayscale Investments has launched a legal challenge against the United States Securities and Exchange Commission (SEC) after being denied its application to convert its Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin exchange-traded fund (ETF). While the lawsuit has been filed to the United States Court of Appeals for the District of Columbia Circuit, a court ruling on the matter is not expected until Q3 2023 to Q1 2024, meaning that we may not see the GBTC going forward any time soon.

How much income does regulation bring?

Surprising as it may sound, large regulatory landmarks do correlate with the crypto market leaps. At least according to financial services company New York Digital Investment Group (NYDIG), which studied Bitcoin (BTC) prices at regular intervals following regulatory events affecting digital asset taxation, accounting and payments, as well as decisions on the legality of service providers and the digital assets themselves. The results are somehow impressive: in the Americas, Bitcoin prices rose 160.4% in absolute terms 365 days after regulatory events and 32.3% in relative terms; in Europe, at 180.1% and 52.0%, respectively.