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Jörn Menninger
23. Mai 202431 Min. Lesezeit

MiCA Explained: Understanding Regulation for Crypto Assets and Services in the EU

Aktualisiert: 4. Juni 2024



Executive Summary


In this episode of Startuprad.io, host Jörn Menninger and guest Alireza Siadat discuss the European Union’s MiCA regulation, which stipulates stringent requirements for stablecoin and crypto asset service providers. They cover the differentiation between stablecoins and asset reference tokens, the need for licenses, and the challenges of gaining regulatory approval. Emphasizing the importance of consumer protection and preventing market abuse, the conversation highlights Germany’s pioneering role in crypto regulation. Entrepreneurial guidance includes obtaining white papers, legal preparation, and the exemption for third-country companies under reverse solicitation. For further insights, listeners can visit paytechlaw.com.


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Cryptocurrency Regulation: “Regulation means, first of all, to understand what is crypto, so to have an harmonized understanding of the crypto assets definition.” — Alireza Siadat, Annerton

Introduction


Welcome to another insightful episode of Startuprad.io! Today, we are joined by Alireza Siadat Lawyer and Head of Digital Assets at Annerton. He is a seasoned expert with over 12 years of experience in digital assets and regulations in Europe. In this episode, we dive deep into the world of crypto regulations, focusing on the European Union’s new MiCA (Market in Crypto Assets) regulation. We’ll explore the complex landscape of ICOs, crypto asset service providers, and the nuanced difference between stablecoins and asset reference tokens.Alireza enlightens us on why rigorous regulations are essential for market stability, consumer protection, and preventing fraud. We discuss Germany’s pioneering role in crypto regulation and highlight significant players like Coinbase, eToro, and Binance who have led the way in obtaining licenses. The conversation also covers transitional timelines, the importance of proper legal documentation, and the necessity for seeking professional legal advice to navigate this intricate space. Whether you’re a crypto enthusiast or an aspiring entrepreneur in the digital asset space, this episode is packed with crucial information you won’t want to miss. Tune in and stay ahead of the curve with Startuprad.io!


Regulating Crypto Assets: “Like, you see a zebra in the front, and in the end, a donkey comes out, which is a nice analogous or nice MIMI of, describing how an ICO document looks, a white paper. The first, pages, like, very illustrative marketing pages describing you like the nicest Zebra you can get. And in the end, you are lucky if you get a donkey.” — Alireza Siadat, Annerton

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The Downfall of ICOs: “People got promised lots of nice things, but in the end, it turned out to be, maybe a company which is insolvent or bankrupt.” — Alireza Siadat, Annerton

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Upcoming Regulations for Stable Coins and Cryptocurrencies: “30th December this year in the entire European Economic Area, if you want to provide services or issue a token related to crypto, you need either a license or white paper.” — Alireza Siadat, Annerton

Questions Discussed in the Interview


  1.  Understanding MiCA: What are the key objectives of the Market in Crypto Assets (MiCA) regulation in the European Union, and how does it aim to standardize the crypto asset market?

  2. Regulatory Timelines: What are the key dates for the implementation of MiCA regulations, particularly regarding stablecoins and other crypto assets, and why is the transitional period important?

  3. Definition and Differentiation: How do stablecoins differ from asset reference tokens according to MiCA, and what specific regulations pertain to each category?

  4. Licensing Requirements: What are the challenges and processes involved for companies seeking to issue stablecoins or asset reference tokens in the European market?

  5. Impact on Entrepreneurs: How does MiCA affect startups and entrepreneurs looking to conduct ICOs or operate as crypto asset service providers, and what steps should they take to comply?

  6. Consumer Protection: How does MiCA intend to protect consumers and prevent market abuse in the crypto asset space, and why is this protection necessary?

  7. Harmonization Across Europe: How does MiCA’s regulation across all EU member states and the European Economic Area create a more unified market for crypto assets and services?

  8. Germany’s Pioneering Role: What role did Germany play in setting the precedent for crypto asset regulation, and how has this influenced other EU member states?

  9. Third Country Companies: How can non-EU companies provide crypto services within the European Economic Area using the reverse solicitation approach, and what limitations do they face?

  10. Future Discussions: What additional legal frameworks or regulations do you foresee becoming important for the crypto asset market, and how might these impact the industry moving forward?



Crypto Regulation Alert: “So you have, for example, you issue a token and this issuance will last, let’s say, 6 months or 12 months, then you will definitely need to look into the MICA regulation and you make sure, if you need, let’s say, a white paper or if you need to have a cast, registered or licensed cast who is doing the services with you together.” — Alireza Siadat, Annerton

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Understanding Reverse Solicitation: “This is actually a fundamental right in Europe for any retail of any customer, the freedom to request services.” — Alireza Siadat, Annerton

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Regulation Strategies in Europe:”We’re a little bit too fast with the toughest regulation, which is a stable regulation. I think we should have done it the other way around.” — Alireza Siadat, Annerton

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Regulation of Crypto Assets: “I think they really envision it as having one industry of utility token cryptocurrencies like what we already have now, like with all the crypto exchanges like Binance, Coinbase, and so on and so on. This is like, I would say, the old the old game with new rules. And then we have the new game, which is the stable coins, which is a tough regulation.” — Alireza Siadat, Annerton

The Expert


Alireza Siadat (https://www.linkedin.com/in/alireza-siadat/) is a seasoned lawyer based in Germany with over 12 years of experience in regulatory advice. He assists banks, fintechs, and other entities either entering the German market or expanding their operations within the European Economic Area. Over the last 8 years, Alireza has honed his expertise in distributed ledger technology (DLT) and blockchain. Since the wave of initial coin offerings (ICOs) in 2017, he has been at the forefront of advising clients on matters related to these emerging technologies. Alireza currently practices with Annerton, where he continues to provide specialized legal guidance in this dynamic field.


“Challenges for Stablecoin Providers in the European Market”: “While it’s a Startupradio like Circle or in Tether, if they want to offer their stablecoins to the European Union or to European market, they would need to first to apply for license, which takes very long, which is not that likely or not that easy to get.” — Alireza Siadat, Annerton

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Understanding Crypto Regulation: “Always look what the FATF is recommending. Always look what the FATF is is publishing.” — Alireza Siadat, Annerton 

Links / Further Readings / Additional Resources



Feedback


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The Interviewer


This interview was conducted by Jörn “Joe” Menninger, startup scout, founder, and host of Startuprad.io. Reach out to him:


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Automated Transcript


Jörn "Joe" Menninger [00:00:00]:

Hello, and welcome, everybody. This is Joe from start up rate dot I, your Startupradio podcaster and YouTube blog from Germany. Welcome today you to another episode of celebrate. Io, this time with a special guest, with a subject matter expert. I would like to welcome Ali Reza here from a head of digital assets from Energen. Welcome.


Alireza Siadat, Annerton [00:00:23]:

Hi, Joe. Thank you for having me today. I'm delighted to talk to you today about digital assets and regulation in Europe.


Jörn "Joe" Menninger [00:00:29]:

Yes. Exactly. So as always, this is touching a legal topic. This is Joe legal advice. You should see it as a starting point for doing your own research, your own digging. And this doesn't constitute any legal advice at all. This just gives you a framework how to think about it. Alejeser, would you like to tell us a little bit about what you do, what you've done in the past before we get into Mika, the topic of today's conversation?


Alireza Siadat, Annerton [00:01:00]:

Yeah. Sure, Joe. So I'm a lawyer. I'm a German based lawyer. So I'm doing regulatory advice for the past 12 years. I'm advising banks, fintechs, but other other players who are entering the German market or expanding their footprint from the German market within the European Economic Area. So and for the past, I would say, 8 years, I have specialized with everything related to DLT, to the distributed ledger technology blockchain. And, with that, starting at 2017 with the wave of ICOs, the initial coin offerings coming over to not just Europe, but I would say to the global market.


Alireza Siadat, Annerton [00:01:40]:

I really specialize in helping players to do crypto business. When I say crypto business, I mean, issuing your own token, but also doing crypto services related to banks like trading, custody, and also other things, and also helping fintechs and non, yeah, nonfinancial payers to do joint ventures and to cooperate with regulated players in Europe.


Jörn "Joe" Menninger [00:02:04]:

And before we get into the topic, I know at one point, ICOs have been very hot. We also have a few, here from the area. We we interviewed about it. But then it was it was a crypto winter. And before or after, did some colleagues ask you, what the hell are you doing there? Why don't you do just simple m and a? It gets a lot of money, but also is a lot of work.


Alireza Siadat, Annerton [00:02:33]:

Yes. Definitely. I mean, you're you're describing it pretty good. I mean, as I said, I started looking into it in 2014, so quite some time. So I've, witnessed all the halving so far. So and everything's related to the Bitcoin halving. So either prior or closely after the halving, we witnessed the the the crypto winter. And I and I had it many times that colleagues, were either laughing about the whole crypto industry or asking me to do some serious business, but I'm not sure how what it why it is like this.


Alireza Siadat, Annerton [00:03:05]:

Maybe it is my nature, my own nature. Because when I started being a lawyer, I started with some not plain vanilla project. I started with Islamic banking and Islamic derivatives. So I was always looking for some, I would say rather adventurous, topics. And, with crypto and blockchain, I have my own fund and, I would not like to change it. And now, I think would say I had a long length, a long pref, we say in Germany, long pref. I I stayed with crypto, and now, it turns out to be also from a, yeah, economic perspective, not such a bad decision to to do crypto business and crypto advice.


Jörn "Joe" Menninger [00:03:49]:

There's also saying in Germany, what takes long will turn out good. Fingers crossed for you that this works. But I have to tell you, at the beginning, I was also pretty skeptical of many, many things. But I do tend to see more and more good, sensible applications of DLT and crypto technology, may be, just crypto assets, a crypt tokenization of assets, and really application of this business, of those tools in business, not just to encrypt of, for bcrypto. So that's something I'm seeing, and that's what it makes it pretty interesting to me. But let's dive a little bit into the regulation here. We're talking about the markets in crypto asset regulation, aka MICA. And since you've you've been a follower for, of the digital asset space for quite some time, can you tell us a little bit about the story and what it's all about? How I mean, the European Union do does have a reputation to want to regulate everything.


Jörn "Joe" Menninger [00:05:05]:

I'm just talking about the banana regulation here. But can you can you elaborate a little bit what's the intention behind it and, the the process before we get into the the the regulation itself?


Alireza Siadat, Annerton [00:05:20]:

Yes. Definitely. So as you just said correctly, I I'm looking at the into the crypto business for some time. And I think it's also a good a good, yeah, a good time to describe it from a historical perspective. Because when I started with crypto in 2014, everyone only knew Bitcoin. Maybe still some people only know Bitcoin from crypto, but there's much more about crypto assets. You mentioned it in 2017, the ICO hype, and we had lots of pump and dumps, so lots of scam activities. And at the same time, when you say crypto, not that many people understand what is crypto actually because, some people understand under crypto cryptocurrencies.


Alireza Siadat, Annerton [00:06:00]:

Some understand, cryptographic techniques to just for administration of information on the on the DLT and stuff like that. So what we had in the I would say after the first major ICO hypes in 2017, 2018 when it went down, the the global regulators, not just the European, they realize that we we have a lack of regulation when it comes to crypto. Regulation doesn't mean that we necessarily need to, forbid or not allow doing business with crypto. Regulation means, first of all, to understand what is crypto, so to have an harmonized understanding of the crypto assets definition. And before we start to do this podcast, I told you, Joe, maybe we shouldn't call it crypto when we talk to UK or US people. Maybe rather call it digital assets because crypto assets are defined in Europe with this MICA and then harmonized definition. So when we talk about crypto assets in Europe, we understand cryptocurrencies, utility token, anything which is not already regulated under the existing regulation. When I say existing regulation, people know the securities regulation in Europe, which is, regulated by MiFID.


Alireza Siadat, Annerton [00:07:08]:

So everything which is non MiFID, which is not regulated under the so called securities regulation in Europe, is nowadays going to be regulated under the MICA. So regulation meant from the beginning have an harmonized understanding of the of the, of the product, of the instrument, crypto assets. And this is something which which I also see overseas in the US or, let's say, in UK, which is something the first step to do, having a really common understanding what we define as crypto assets. And then the second thing, why we need the crypto assets regulation or why we started having the crypto assets regulation. Also, again, going back in history, when you look at the ICOs, many people know all of this funny, white paper, yeah, I would say, MIMI's, which you see in the Internet. Like, you see a zebra in the front, and in the end, a donkey comes out, which is a nice analogous or nice MIMI of, describing how an ICO document looks, a white paper. The first, pages, like, very illustrative marketing pages describing you like the nicest Zebra you can get. And in the end, you are lucky if you get a donkey.


Alireza Siadat, Annerton [00:08:19]:

So and this is really how most of the ICOs went in 2017 and 2018. People got promised lots of nice things, but in the end, it turned out to be, maybe a company which is insolvent or bankrupt. And there's no blockchain, no DLT, no nothing. And, maybe you also, think back, Joe, when all this ICO happened and then, people started started putting some celebrities, some movie celebrities as their advisors and their pictures. And then, someone saw it and made fun of it and say, okay, nowadays all the, ICO companies have all this movie and the Hollywood celebrate as advisors. How can it be? And this is something which needs needed to be changed. So consumer protection, protection from, yeah, market abuse, scammers, and also having some really reliable players in the market, the opportunity to do their business. Because when you think back of 2020, like 4 years ago, Germany was the 1st regulator putting in regulation.


Alireza Siadat, Annerton [00:09:20]:

Everyone said this is the end for crypto in Germany. But, actually, it was the opposite with Coinbase, the first global crypto exchange player, being the 1st regulated player in Germany. Many others followed or tried to follow. EToro applied for license. Binance tried the same. Others like Creighton and and major players are going to follow that, that approach to be regulated, to be able to provide the activities under a transparent regulated manner rather than doing something where no one really knows. Is it legal? Is it illegal? Is it gray? Is it white or black?


Jörn "Joe" Menninger [00:09:56]:

When you've been talking about that, so the main reason is a protection of the digital asset investors and the companies regulated should welcome it because it will get more trust to those players. And therefore, in the mid to long term, also get a lot of, hopefully, a lot of new investors. I do believe that's why all of them are going through the very painful process of getting licensed. I I would be able to tell some stories about that, but I can't. But, nonetheless, it's it's not it's it's not a joyful experience. But you you have to see that the the people on the other side, the regulators, that most of them also don't enjoy it, but they do see the value in it. But you you already, referenced about MiFID, markets in financial instruments directive. And, now we are in MICA.


Jörn "Joe" Menninger [00:10:59]:

So MiFID regulates everything in financial markets, and they just found the definition everything that's not regulated under MiFID is MICA. Is that correct?


Alireza Siadat, Annerton [00:11:08]:

That is correct. So everything which is not already regulated under the MiFID regime, and it is has some, I would say, investment purpose or some purpose to be exchanged or traded on the marketplace or Joe called trading menu, would be highly highly likely to be regulated under Mika. And this is actually a good first entry into understanding what MICA is.


Jörn "Joe" Menninger [00:11:36]:

Before we get into that, we should say that MICA is a European Union regulation, so it applies to all member state of the European Union. Very likely, Norway, Liechtenstein, and Iceland will also follow some way and also, get this regulation into their legal framework. And I'm I'm not too sure about Switzerland, but I'm I think they would miss an opportunity if they would not jump on this train and, show that, their space is also regulated.


Alireza Siadat, Annerton [00:12:12]:

Yes. Exactly. So, the the MICA, the market in crypto assets regulation, very important to regulation. Unlike a directive, it does not need to be implemented into domestic law. So it's directly applicable to all member states. Plus, this mega regulation is also applicable to the European Economic Area jurisdictions like Liechtenstein and others. So there, it is also going to be applicable directly. However, we're gonna see also some laws which are called implementing laws or transitional laws because countries such as Germany or even Liechtenstein, they have already some crypto regulation in place, which is not in line or not harmonized with the MICA.


Alireza Siadat, Annerton [00:12:58]:

Therefore, such jurisdictions like Germany or Liechtenstein and some others, they need to, adopt or change or harmonize their domestic regulation with the MICA. So in the end of the day, what we call in the European Union a single market should be also available for crypto assets.


Jörn "Joe" Menninger [00:13:18]:

I see. Plus, we should also add that each of those member states have has to follow the regulations, but they can also make it tighter with, national law and even limit it more. So that would also be possible here.


Alireza Siadat, Annerton [00:13:35]:

Exactly.


Jörn "Joe" Menninger [00:13:36]:

Can can you tell? Let's go a little bit into the timeline before we talk about what it means for companies, for entrepreneurs who are active or thinking about being active in the digital asset space. My understanding is that MiCa does not necessarily apply right now to everybody, but there's a the the there's a phase, where more and more of those regulations actually do apply.


Alireza Siadat, Annerton [00:14:04]:

Exactly. So the MICA itself, so the legal text, is already effective since last year end of June. So since the 30th June last year, the text has passed all the, regulatory bodies, so it is effective. However, it is always like this with EU regulation that it's never directly applicable. There is a timeline, a so called transitional period, where the market players, the regulators, and also those who provide their services, have time to get used to the law. This is a transitional period, which takes up to 18 months and up to 18 months because we have a 2 phased approach. The first phase ends after 12 months. This would be the 30th June this year.


Jörn "Joe" Menninger [00:14:49]:

That's why we are talking today.


Alireza Siadat, Annerton [00:14:51]:

Yes. So 30th June this year, we are going to face, the regulation for the so called stable coins. This is everything which covers Emani token, asset reference token. So in other words, all those US Tethers and USDCircle and, all the coins which are have a purpose of being, similar to money, e money, will be regulated already now. Whilst the remaining crypto assets like cryptocurrencies and utility token shall be regulated by the end of this year, which will be the 30th December. So we can say at the latest, 30th of December this year in the entire European Economic Area, if you want to provide services or issue a token related to crypto, you need either a license or white paper. So these are the 2 things, white paper for issuers and the license for service providers, so called crypto assets service providers, also called CASPS.


Jörn "Joe" Menninger [00:15:54]:

We'll get into that, later on. But first, let us go a little bit through, what Mika actually means for the entrepreneur. Our understanding is now June 30, 2024. Some, some regulations come into force. And at the latest, on December 31st 2024, all regulations apply within the European Economic Area, which is the EU, Liechtenstein, Norway, and I do believe Iceland.


Alireza Siadat, Annerton [00:16:24]:

Exactly. And this this is the important part. So everyone who is still thinking of doing some activities, and it ends before the 30th June, which is a very short time, can do it now without, breaking their heads over it. But, if you're planning to do something, even if it starts now, but it takes longer. So you have, for example, you issue a token and this issuance will last, let's say, 6 months or 12 months, then you will definitely need to look into the MICA regulation and you make sure, if you need, let's say, a white paper or if you need to have a cast, registered or licensed cast who is doing the services with you together. And this is something which will not just apply for those living or being domicile or registered within a European Economic Area. It also applies to those 3rd countries. Like, let's say, you're sitting in Switzerland or UK or the US, and you're right now providing your services to the European market.


Alireza Siadat, Annerton [00:17:26]:

This will also apply to you, unless you make sure that you use the so called reverse solicitation exemption. Reverse solicitation, for those who don't know it, reverse solicitation means that if you provide your services, but you're not actively targeting the European market. Let's say you're like a new US company and you have a web page, which is, mostly targeting the US audience. But for some reasons, someone from the EU is, getting to your web page, asking for the services. In that case, you're allowed to provide the services to the one asking for the services. This is actually a fundamental right in Europe for any retail of any customer, the freedom to request services. So you're allowed to provide your services to those who come to you, but there's, sole exclusive, intention. So you do not ask them to come to your web page, and then you're allowed to provide the services without having the license.


Alireza Siadat, Annerton [00:18:26]:

So this is reverse solicitation. If you put this in brackets or this put outside the the scope, everyone else who is addressing the European market needs a license or a white paper.


Jörn "Joe" Menninger [00:18:39]:

And for those, how did he call it? Reverse, resolidation. Yes. Exactly. But we we link down here in the show notes to it. Does it mean you have to be a regulated entity somewhere in Singapore, in the US, or in Panama, or does it just mean you're not directly marketing to, to citizens of the European Economic Area living there or people living there, and you just can't get out of this regulation, with this little trick.


Alireza Siadat, Annerton [00:19:14]:

So it actually applies to anyone. So any company, any payer outside of the European Economic Area, so called a third country, can provide its services, on this reversal of solicitation approach. They do not need to be regulated. Maybe they need to, but this is not of interest for the, European regulator. The European regulator only is looking at the laws which apply to the European Union. Joe, for example, if you have a player, let's say, from China and in China, crypto asset services are not allowed, This is not important to the to the German or to the European regulator. It's only important that the that this Chinese crypto asset service provider is providing its services solely on reverse solicitation and not targeting, the European market.


Jörn "Joe" Menninger [00:20:04]:

Mhmm. So and now we get to to the core of it all. What does it mean for entrepreneurs? 1st, what do they need to do? I do assume they do have to go to the national regulatory authority, for example, in Germany, Waffen, and say, hey, guys. I'm I'm this person. I'm this company. I want to provide those services. Of course, best is it if you have a lawyer who asks these questions. But, basically, you have to approach the regulatory authorities best with lawyer.


Jörn "Joe" Menninger [00:20:40]:

And, hopefully, you've spoken to him or her a few times before, and they prepped you for this conversation.


Alireza Siadat, Annerton [00:20:46]:

Yes. I mean, it is basically how you say it, Joe. You can also check it out. For example, some regulators like the Austrian Regulator, they have a very nice web page, even English. So it's a financial market authority in Austria, FMA. So if you just put in Google FMA and then Mika, you will straight get to their web page, and there you find some information. So you can go and approach your domestic regulator. You can even go to any regulator.


Alireza Siadat, Annerton [00:21:15]:

So if you are located in Europe, you do not need to go to your own regulator. Let's say you're in Germany. You do not need to go to Bafin, to the German regulator. You can also approach the Austrian regulator. This is also the nice thing about Europe. We do not really know borders. It is all borderless. It also applies if you have a license for your activity, you can provide the service to the entire European Economic Area, which is called passporting.


Alireza Siadat, Annerton [00:21:40]:

Yeah. So, so the first step you would do, you would first try to understand if your product or your service is regulated on Namica. You can ask, for example, for also a court no action letter. No action letter means that, regulator confirms to you that, for example, you're not regulated because your product is, for some reason, not under Mika and not regulated at all. Or you can look


Jörn "Joe" Menninger [00:22:03]:

You don't need to take action. Right?


Alireza Siadat, Annerton [00:22:05]:

Exactly. Exactly. Yeah. Or you have also have to differentiate. We differentiate between the issuer. An An issuer is someone who is issuing a token. So doing an ICO, for example, from those who provide services, which is a crypto asset service provider, a crypto asset service provider is, for example, someone who's running a crypto exchange or doing the custody for crypto assets whilst the issuer can solely do the ICO and not doing anything else. Yeah.


Alireza Siadat, Annerton [00:22:33]:

So if you only do an ICO and you do not do anything else, you usually you do not need to have a license. What you need to do is you need to have a document in place, a so called white paper. And this white paper, I said it in the beginning is not this funny marketing white papers you had back in 2017. It is a very formalistic and standardized document, which needs to look exactly as the regulator is telling you it has to look. But now it comes. This document does not need to be approved or accepted by the regulator. You only need to notify the regulator, which means, 20 days before you wanna go live with your ICO, you'll send the final document, your final white paper to the regulator and tell the regulator, look here. I'm planning to do an ICO in, let's say, in 20 days.


Alireza Siadat, Annerton [00:23:24]:

This is the document me and my lawyer, we have, finalized.


Jörn "Joe" Menninger [00:23:29]:

Have a


Alireza Siadat, Annerton [00:23:29]:

look at it and then publish it on your web page. I'm gonna do the same on my web page, and then I'm gonna go live in 20 days. Then maybe the regulator comes back to you and says, you're fine to Joe. Or the regulator says, are you really sure that your document you have produced is in line with the, standards and you have not forgotten something? And I think that the regulator will do this in the Menninger. And after some time, the regulator will not do it anymore because the regulator is really not in charge for accepting or reviewing the document. Yeah. They would just collect it and have a look at it and see if it's really complete. Yeah.


Alireza Siadat, Annerton [00:24:07]:

And this what you have to differentiate from those who want to provide a service and the one who want to provide a service. They really need to have a license. And they apply for the license, then they get the license, and then they can provide the services to the whole European Economic Area. And this is a 2 different categories of players in the market, the issuer and the crypto asset service provider. So white paper and the license.


Jörn "Joe" Menninger [00:24:31]:

From your personal experience as lawyer, as a partner with Enogen, how long should an entrepreneur estimate to finish this white paper with lawyer? Is something like 12 month or 12 days?


Alireza Siadat, Annerton [00:24:46]:

So we have, nowadays some tools, which are available free to use in Internet. So with such tools, everyone can, produce its wipeable within couple of days. However, the the detail work, the fine parts, which are also, critical things, which may raise liability. I talk about civil liability for the issuer. This may need a little bit longer. And also the description of, the technological background of the of the, yeah, blockchain user DLT use and stuff like that. This could take a little bit longer. So I would say anyone who wants to do an ICO nowadays and plans to do it for the next 2 or 3 months should plan with 2 to 3 months in advance, and 2 to 3 months.


Alireza Siadat, Annerton [00:25:30]:

I think that's a good timeline, and then do that. However, now it comes. There's one category of token, which is the stable coins. For the stable coins, either it's a emoney token or asset reference token, not everyone is allowed to issue such a token. For example, an e money token, you're only allowed to issue if you're an e money institution. This is a licensed player. Asset reference token, you should be a bank or to have a license as an, yeah, asset reference token issuer under Mika, which is very close to a bank. So for these two categories, like, the stable coins under under Mika, you should be aware that only white paper is not enough.


Alireza Siadat, Annerton [00:26:12]:

You need to make sure that you have to be an emani licensed, company or bank. Yeah. And this is something, special.


Jörn "Joe" Menninger [00:26:20]:

Okay. Let let let me try to work this out a little bit. So, what I want to say, what you already said is you get this white paper to the regulator. They don't have any objections, but it still does mean you are liable for everything that is in there. It's an important legal document. And just don't Google the pieces. I put them together. Ask a capable lawyer, please, guys.


Jörn "Joe" Menninger [00:26:47]:

On the other hand, as you already referred, there are these service providers, crypto asset service providers. So that means as an entrepreneur, you can still do your ICO. You prep your white paper, but then you do have to work with people who are licensed, providing all those services. What have, for example, do have in mind is somebody, safekeeping of the assets of the cryptos on behalf on the digital assets, on behalf of the, of the investors, something like a custodian bank has done in the past. Also, as you said, stablecoin, that means one of your coins refers to €1, Then you're in a much higher regulated field. Then maybe you should more think about 3 years than 3 months of preparing this. Plus if you want to be, as you said, an asset reference token. So that means, I do believe it, refers to tokenization of securities.


Jörn "Joe" Menninger [00:27:54]:

Right? So it simplifies the securities trading, especially in the European Union, but I do believe soon across the world, where you just have a crypto token that is traded, that is bust around on behalf of a physical security of a share of a bond of something else. Right?


Alireza Siadat, Annerton [00:28:16]:

Yes. So, you you you you almost token or US dollar currency. Yeah. So USDC, for example. Yeah. Mhmm. In contrast to that, the asset reference token is referring to at least 2 instruments which are in the portfolio in a bucket. It could be a currency.


Alireza Siadat, Annerton [00:28:50]:

It could be, as you said, a security. It could even be a cryptocurrency, which is lying in the bucket. Yeah. The best example for that is the US Tether. If you look at the US Tether and you look at the basket of instruments, which lie, with, the Tether Foundation, you can see there are, I think, 6 or 7 or 8 different assets, even gold and some other, some other assets are lying there. And, so if you go back with your US Tether to the Tether Foundation, you can even get instead of cashback, you can get, for example, gold or a US, dollar bond or something like this. You you can redeem that. And as you just said it correctly, if you have such an instrument and it's backed by some assets where the this asset really needs to be there.


Alireza Siadat, Annerton [00:29:38]:

So with that, you guarantee the stability of the coin. If you look from that perspective, then you really understand why not everyone is allowed to issue such a coin. Otherwise, I would say the scamming industry would just rise with this possibility. Therefore, there is some reason why only money institutions or a bank is allowed to issue such a coin.


Jörn "Joe" Menninger [00:30:02]:

So bottom line is for me right now. If you want to do an ICO, you need to look at what services you want to provide with the token and have somebody who is legally able to provide all the services around it. For example, issue interest, dividends, and so on and so forth. Everything you want to do with that, everything that need to be serviced, you need somebody who's licensed to do that. And, of course, stable stablecoins or asset reference tokens, it's a completely different ballgame here. What other regulations do apply if you if you do want to ICO a token. For example, what there there there are, like, a salient things such a token can do. We now know it cannot reference to so called fiat money, that fiat money that are official currencies.


Jörn "Joe" Menninger [00:31:01]:

Think Japanese yen, Korean won, Brazilian real, US dollar, euros, pound, and so on and so forth, plus also securities, I do believe.


Alireza Siadat, Annerton [00:31:14]:

Yes. I mean, there is a there's a very complex list of rules and obligations. And as you said, we really have to differentiate. Joe if you're the issuer, for example, and you wanna issue you an E money token issue and you wanna issue, an euro backed, stable coin, for example, you're not allowed to issue interest. You're not allowed to pay interest to the users, and you're not allowed to take the money and work with it. That's forbidden. Yeah. If you have asset reference token, you are allowed to do that.


Alireza Siadat, Annerton [00:31:45]:

You're allowed to work off the money and you need to pay out interest. Yeah. But then again, it's there's a a bucket of so called significant Menninger token. A significant Emoney token, has the the exemptions which apply to asset reference. So so so so so if we can e money token, you are allowed to take the money which you receive from the users or from the investors to work with that, and you pay out diff, interest. However, you have to, you're not allowed to take all the money. You have to keep, let's say, 30%, as a risk buffer available, similar to a bank, which keeps when it gives out loans, like 12% or 19%. Yeah.


Alireza Siadat, Annerton [00:32:23]:

And these are things which are very detailed, very complex. That's why I would say, we should not talk that much about the Stablecon issuers. Maybe we we go on and talk about the cryptocurrencies and utility token, because I would say we see much more of those coming, and also maybe related services to them, like a crypto exchange, as you said, a custodian, like a safekeeper, crypto portfolio management, crypto advice, all of that things, which are also coming, which are not necessarily dependent on the issuance of the token. You can also take an existing token like Bitcoin or Ethereum or others who are already existing and provide services to them.


Jörn "Joe" Menninger [00:33:06]:

Sure. That that will be the next part because I just want to get, like, the big guys out of the way to to to to get, to this area. So, we we already talked about, like, the custodians who keep the tokens safe. The exchanges where you can basically trade them. Can you talk a little bit about how the European Union envisions such an environment, such an ecosystem, with the regulated entities? Because as we said, you have a crypto token, you have a utility token, that that we now, go on a little bit to talk about where you basically explain the makeup world to us. Right?


Alireza Siadat, Annerton [00:33:52]:

Yes. Yes. Exactly. So, basically, you can say, really, as a rule of thumb, but in a nutshell, when you have a stable coin, like an email token or an asset reference token, the highest regulation applies out of Mikan. If you have an utility token or cryptocurrency, the regulation is less tough, less, strong. Yeah. And, therefore, which is actually, I would say also strange because if you look at the Mika timeline, as I said in the beginning, from the beginning, the rules on the stablecoins apply from the 30th June this year, while it's on a less critical token, like a currency token, utility token, the rules apply from the 30th December. Yeah.


Alireza Siadat, Annerton [00:34:34]:

I believe, honestly, they did it like this because if you think back when Facebook wanted to, issue its own token and to do their own wallet, like of Diem and Libra and all of that. The European regulator was very nervous about that, and they wanted to have very quickly a regulation in place to cover, the Facebook Libra slash Diem Association project. However, as you all know, they have left Switzerland. This project was never launched in in the European Economic Area, and therefore, I think we're a little bit too fast with the toughest regulation, which is a stable regulation. I think we should have done it other way around. You know? You have the regulation for utility token, currency token apply first Joe that people get used to that. You always start with the easier things and then to have the stronger and the tougher regulation later coming. So I think this was already a wrong move of the European regulator.


Alireza Siadat, Annerton [00:35:30]:

However, it is what it is. Therefore, we also started talking about the stable regulation before we go on with the utility token and currency token. However, as as as you were asking how the regulator, the European regulator, but also the National Carbon Authority, so the domestic regulators envisioned the regulation of crypto assets. I think they really envision it as having one industry of utility token cryptocurrencies like what we already have now, like with all the crypto exchanges like Binance, Coinbase, and so on and so on. This is like, I would say, the old the old game with new rules. And then we have the new game, which is the stable coins, which is a tough regulation. So the new games with new players such as Iman Institutions and Banks who will be regulated very, very tough. And I think, basically, the regulator imagines this new product in this new world to be in the hands of the existing players, like the existing banks and the existing e money institutions because they already have a license.


Alireza Siadat, Annerton [00:36:34]:

So for them to issue this token like a stable coin, is not that difficult. They only need a white paper, and they can then they can start doing it. While it's a Startupradio like Circle or in Tether, if they want to offer their stablecoins to the European Union or to European market, they would need to first to apply for license, which takes very long, which is not that likely or not that easy to get. And then they would be happy to continue providing their services to European Economic Area. I would in my positions, if I would be US Tether, probably this is the reason why Tether is not really entering right now in the European market. Think of, is it worth it? Is it worth it to enter the European market or to continue in Europe? Maybe I should just, continue with Africa and, Asia and and, I don't know, Middle East, yeah, where you do not need to have a stable contract regulation license.


Jörn "Joe" Menninger [00:37:29]:

I see. So a lot of in a lot of interesting thoughts in there. Joe, basically, what the European Union is trying to do is all digital assets that are close are very similar to financial services. Push them towards financial services. And there there is some that are left and, basically, that's a space you can move in as an entrepreneur. Did did I get you right some way here?


Alireza Siadat, Annerton [00:38:05]:

Yes. Yes. You you got me right, Joe. So if if you can't if you're, like, from the DeFi sector or you have, like, from the sector where you have always issued utility token, the the European regulator is fine with it that you can continue with that. Just make sure that you have your ypep Ypepapa in place. And if you wanna provide custodian services or if you wanna provide a a platform, a marketplace where people can trade your cryptocurrencies and utility token, make sure that you have a license as a CASP. Yeah. That's basically it in a nutshell.


Alireza Siadat, Annerton [00:38:36]:

And we should not forget why we have all of that regulation. And this is, I think, very important. The the the origins of regulating crypto assets, like the origins also of regulating all of financial instruments comes from the anti money laundering, yeah, rules and obligations, which are suggested, on a yearly basis by the financial action task force by the FATF. And the financial action task force, if you think back, it was in December 2013 already, was the 1st international body which said we need to have regulations in place for virtual assets for virtual asset service provider providers. So if you want to understand how the regulation evolves or develops for crypto assets, always have a look at the FATF. Always look what the FATF is recommending. Always look what the FATF is is publishing. It all goes hand in hand.


Alireza Siadat, Annerton [00:39:30]:

So anti money laundering rules and regulation of, yeah, service providers goes really hand in hand.


Jörn "Joe" Menninger [00:39:37]:

So that means, basically, it's not necessarily all the questionable things that have been going on in the digital asset market that have been triggering this. But money laundry, tax avoidance, terrorism financing, those have been the harder pieces. And that's why everything was pushed towards regulated entities who already have to comply with the respective regulations there.


Alireza Siadat, Annerton [00:40:06]:

Exactly. Exactly. And, this this is the we we call it the so called obligated parties or some would say intermediaries. And this is actually exactly what the DLT, the distributed ledger technology does not want to have intermediaries. Yeah. So it doesn't really doesn't really, match or fit, but somehow the regulator is trying to match it and to fit it or to make it be fit. And this also the reason, for example, why if you have a pure, DeFi, so a decentralized finance player, which is not having any intermediaries, this player will not be regulated by MICA because the MICA is only applying to intermediaries, to people, to to obligated parties. If there is no intermediary or no one who has the stakes in hand, such as a really truly decentralized finance environment, then the MiCa is not applying.


Jörn "Joe" Menninger [00:41:02]:

Adiressa, I would say those are really interesting closing, which we're running already around 40 minutes for our recording, which is a little bit on longer side. I nonetheless, I have to have you back pretty soon, And then we can talk about some other, legal framework here that our audience needs to be aware of. Great.


Alireza Siadat, Annerton [00:41:23]:

Thank you, Joe. If anyone is interested to to tune in, we have a also a web page, paytechlaw.com. Check it out. Or if you wanna connect with me on LinkedIn, I'm very active there. Just connect there. Thank you, Joe.


Jörn "Joe" Menninger [00:41:35]:

Probably my pleasure. Everybody who'd like to learn more, go down here in the show notes. There's a link to PayTech Law as well as to your LinkedIn profile and your company website. Have a good day. Bye bye.

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