‍1 Introduction: From a Regulatory Gap to a Unified Framework

In 2023, the European Union officially launched the landmark Markets in Crypto-Assets Regulation (MiCAR). Against the backdrop of maturing global crypto-asset regulation, the EU introduced the MiCAR framework to establish a unified regulatory framework for crypto-assets across all 27 member states, replacing the previous "fragmented" regulatory practices of individual countries.

According to the EU legislative process, MiCAR will be implemented in phases:

· From June 30, 2024, key provisions related to stablecoins (the ART and EMT sections) will officially apply;

· From December 30, 2024, the remaining provisions concerning Crypto-Asset Service Provider (CASP) licensing, market manipulation prevention, investor protection, and other areas will fully take effect.

The background for MiCAR can be traced back to the EU's 2020 "Digital Finance Strategy". The core goal of this strategy is to balance innovation with regulation, protect investors, and maintain financial stability. Under this strategy, MiCAR, along with regulations like the Digital Operational Resilience Act (DORA), forms the core of the EU's digital finance regulatory system. More importantly, MiCAR is not just a "risk-prevention" law; it represents the EU's hope to provide long-term, sustainable legal certainty for the blockchain and crypto industry through a tech-neutral legislative approach, giving it greater practical significance. Below, this article will interpret the main components of the MiCAR framework, including the definition of crypto-assets and asset-referenced tokens, and analyze the impact of this framework on the European crypto market.

2 What's Inside the MiCAR Regulatory Framework

MiCAR's regulatory system can be divided into two main levels: crypto-assets and crypto-asset service providers.

2.1 Defining and Categorizing Crypto-Assets

On a tech-neutral basis, MiCAR defines a "crypto-asset" as "a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology (DLT) or similar technology". It divides Crypto Assets into three core categories, as follows:

2.1.1 Asset-Referenced Token (ART)

An ART is a type of crypto-asset, distinct from an Electronic Money Token (EMT), whose value is maintained by referencing some other value, right, or a combination thereof. (MiCAR, Article 3(1)(6)).

According to Articles 16 and 20 of MiCAR, any entity intending to issue an ART must complete an authorization process before issuance, and the issuer must be a legal entity established in the EU or an authorized entity. The authorization process must be initiated through a formal application (MiCAR Article 18). Furthermore, the application must include a legal opinion confirming that the crypto-asset exists, falls within the scope defined by MiCAR, and is not an Electronic Money Token (EMT). Finally, the prospective issuer must submit a crypto-asset white paper and can only issue the token after it is approved.

2.1.2 Electronic Money Token (EMT, similar to stablecoins)

The value of an Electronic Money Token is intended to be stable by pegging to the value of a single official currency. It can be seen as a stablecoin pegged to a single official currency (like the Euro, US Dollar, etc.) and is specifically defined and regulated under MiCAR. According to MiCAR Article 81(1), only credit institutions or electronic money institutions can issue Electronic Money Tokens (EMTs). At the same time, because EMTs are legally classified as electronic money, issuers must also comply with Chapters 2 and 3 of the Electronic Money Directive (EMD). MiCAR does not require an authorization process for EMT issuers; they only need to notify the authorities and publish a white paper.

2.1.3 Other Crypto-Assets

This category includes crypto-assets like utility tokens and Bitcoin, which are neither Asset-Referenced Tokens (ARTs) nor Electronic Money Tokens (EMTs), and also do not fall under the crypto-assets excluded from MiCAR. Generally, they do not require authorization for issuance. In principle, this type of crypto-asset still requires the preparation of a white paper, notification to authorities, and public release, but exemptions exist if certain conditions are met.

2.2 The Crypto-Asset Service Provider (CASP) System

MiCAR establishes a unified regulatory system for crypto-asset service providers for the first time, imposing systematic regulatory requirements on Crypto-Asset Service Providers (CASPs). This covers service areas such as custody, trading, exchange, advisory, issuance, and transfer. The core requirements for CASPs include:

2.2.1 The Single License System (Passporting):

Once a CASP obtains a MiCAR license in any member state, it can operate throughout the entire EU; this is known as the EU passporting mechanism. The core of MiCAR is to bring all businesses that provide crypto-asset services to EU users under the unified CASP regulatory system. Any CASP wishing to operate within the EU must get authorized in one member state, after which it can serve the entire EU market through the "single passport" principle.

Additionally, MiCAR specifies 10 categories of service activities. As long as a company engages in any one of these activities within the EU, it must obtain a MiCAR license and be subject to regulation.

No.

Service Category

Brief Description

1

Custody and administration of crypto-assets

Holding clients' crypto-asset private keys or wallets, responsible for the secure storage and recovery of assets.

2

Operation of a trading platform for crypto-assets

Providing a venue or system for matching trades (like an exchange) for buyers and sellers to transact in crypto-assets.

3

Exchange of crypto-assets for funds

Providing exchange services between crypto-assets and fiat currencies (e.g., BTC to EUR).

4

Exchange of crypto-assets for other crypto-assets

Providing exchange services between different crypto-assets (e.g., ETH to USDT).

5

Execution of orders on behalf of clients

Executing buy or sell orders for crypto-assets on behalf of clients.

6

Dealing on own account

A firm trading crypto-assets with its own capital, similar to a market maker.

7

Placing of crypto-assets

Selling newly issued crypto-assets to investors on behalf of the issuer.

8

Reception and transmission of orders

Receiving and forwarding transaction orders to other CASPs or platforms on behalf of clients.

9

Advice on crypto-assets

Providing personalized investment advice on the purchase, sale, or holding of a specific crypto-asset.

10

Portfolio management on crypto-assets

Managing a portfolio of crypto-assets on behalf of clients or investment funds.

This classification system covers almost all major business models in today's crypto market. This also means that whether it's a mature, large-scale trading platform or an innovative project in its early stages, as long as it provides relevant services to EU users, it must fall within MiCAR's regulatory scope.

2.2.2 Transitional Arrangements:

To ensure a smooth transition, MiCAR includes transitional provisions: CASPs that were already operating in compliance with their national laws before December 30, 2024, are allowed to continue operating during a transition period until they either obtain or are refused a MiCAR license, or at the latest, until July 1, 2026. Member states can set their own national transition periods, which may vary in length. This arrangement provides an 18-month grace period for the market, giving both regulators and industry participants ample time to align their systems and make compliance adjustments. It also effectively resolves the previous issue of "multiple regulators" within the EU, making the regulatory environment more certain and competitively fair.

3 Impact on the Crypto Tax and Regulatory Landscape

The introduction of MiCAR is not just an update to the regulatory system; it also profoundly impacts the EU's tax policies and compliance landscape.

3.1 Issuance Regulation: From White Paper Disclosures to Reserve Requirements

3.1.1 Issuance of General Crypto-Assets: White Paper Disclosure + A Lighter Touch

Under the MiCAR system, for general crypto-assets that are not ARTs or EMTs, regulation takes a milder "disclosure-first, approval-second" approach. First, the issuer must be a company or legal entity with legal personality, so that its actions are legally traceable and it can be held accountable, ensuring recourse in case of disputes. Second, this issuing entity must draft and publish a crypto-asset white paper in accordance with MiCAR's requirements, disclosing key information including, but not limited to: the issuer's name, registered address, and governance structure; the token's technical architecture, operating principles, and rights mechanisms; risk disclosures (e.g., smart contract risk, liquidity risk, policy risk, etc.); investor rights and obligations, fee structures, and issuance/burning mechanisms; and a compliance statement (e.g., "This white paper has not been approved by a competent authority in the EU" to avoid misleading investors into thinking it has official endorsement). Furthermore, MiCAR also requires issuers to have an ongoing obligation to update for significant changes. This means that when changes occur in the project structure, funding arrangements, risk factors, etc., that could affect investment decisions, the white paper must be promptly amended or a modification note disclosed to ensure investors always have the latest, most accurate information.

Under this mechanism, projects do not need to go through a complex pre-approval process, which lowers the barrier to entry and is beneficial for innovators and small projects participating in the market. At the same time, through the mechanism design of information disclosure and accountability, it can also balance the protection of investors' right to know with maintaining market vitality.

3.1.2 Stablecoins: Strict Regulation + Rigid Reserve Constraints

Unlike the more relaxed issuance system described above, MiCAR imposes a strict and rigid regulatory framework on the issuance of stablecoins—namely ARTs and EMTs—to ensure the robustness of these tokens in terms of redemption, reserves, and security.

(1) Authorization Requirements and White Paper Approval

From June 30, 2024, all projects that publicly offer ARTs or EMTs in the EU, or list them on an exchange, must be authorized by the competent authority in their country.

In the case of ARTs, issuers other than credit institutions must apply for MiCAR authorization and must submit a white paper during the authorization process, which can only be published after approval by the competent authority.

For EMTs, the issuing entity must be a credit institution or an Electronic Money Institution (EMI) and be authorized under the traditional Electronic Money Directive (EMD) or other regulatory frameworks.

After the white paper is submitted, the competent authority must determine within a specified time whether it is complete and compliant with regulatory requirements; if it complies, it will be approved or filed.

MiCAR also recognizes that some ARTs or EMTs may become significant due to their scale and other factors, potentially posing higher risks. Therefore, the European Banking Authority (EBA) will take on supervisory responsibility for the issuance functions of institutions that issue significant ARTs and some significant EMTs under MiCAR.

(2) Reserve Assets and Asset Segregation

The system of reserve assets and asset segregation is one of the most critical parts of MiCAR's regulatory design: issuers must establish a pool of reserve assets that is segregated from their other assets, which must be used primarily to honor redemption requests from token holders. In other words, even if the issuer goes bankrupt, this pool of reserve assets should not be used to pay off debts or be liquidated for other creditors.

The requirements for the composition and liquidity of the reserve assets are also very strict:

· The reserves must be diversified and can only include highly liquid, low-risk assets (such as deposits, government bonds, high-quality covered bonds, certain money market instruments, etc.).

· Regarding the proportion of deposits held in credit institutions, the draft Regulatory Technical Standards (RTS) published by the EBA in 2024 recommend: non-significant stablecoins must deposit at least 30% of their funds in banks to ensure basic redemption capability. If a stablecoin is deemed significant, 60% must be deposited. At the same time, when token holders make redemption requests, the issuer must be able to liquidate the reserve assets promptly. (Refer to the original RTS text: Article 36(1) of Regulation (EU) 2023/1114 requires issuers of asset-referenced tokens (ARTs), whether they are either if the ARTs are significant ARTs or not, to constitute and maintain a reserve of assets at all times to cover their liabilities against the holders of their issued ARTs matching the risks reflected within these liabilities.

The reserve of assets is composed of the assets received when issuing the token holders and by the highly liquid financial instruments the issuer may invest in. In the case of tokens referenced to official currencies, a minimum part of the reserves should be held in the form of deposits in credit institutions (at least 30% of the amount referenced in each official currency if the token is not significant, and at least 60% if the token is significant).

Upon redemption requests from token holders, the issuers should be able to liquidate the reserve assets.)

· If an ART or EMT is deemed "significant," regulators can impose higher liquidity and concentration limits, risk mitigation measures, and more.

Furthermore, if the market value of the reserve assets declines or experiences an adverse change, the issuer must promptly cover the shortfall (i.e., "rebalance" or compensate) to ensure the total value of the reserve assets is always ≥ the total value of the issued tokens.

Under this framework, the requirements for stablecoin issuers' capital, liquidity, and operational resilience are extremely high, significantly raising the barrier to entry for issuance. This "rigid constraint" mechanism for stablecoins aims to prevent large-scale redemption pressures, payment settlement crises, and risks of confidence collapse, thereby enhancing the security of the stablecoin system for both holders and the entire financial system.

3.2 MiCAR's Impact on the Crypto Tax System

According to Article 98 of MiCAR, the competent tax authorities of each member state are integrated into the crypto-asset regulatory cooperation system. They must share necessary information with financial regulators (like national financial authorities and the European Securities andMarkets Authority, ESMA) to identify cross-border transactions and potential tax evasion. This means that for the first time, tax departments are formally embedded in the crypto-asset regulatory chain. They no longer need to rely on after-the-fact investigations or voluntary reporting; instead, they can leverage the transparency mechanisms established by MiCAR to achieve real-time or periodic monitoring of transactions.

However, MiCAR does not directly set rules for tax collection. Instead, it complements the EU's eighth Directive on Administrative Cooperation (Directive (EU) 2023/2226, or DAC8). Starting January 1, 2026, DAC8 requires all Crypto-Asset Service Providers (CASPs) operating within the EU to report transaction data of their EU resident clients to tax authorities. This includes information on sales, purchases, transfers, staking, airdrops, and income. This data will then be automatically exchanged among EU member states, building a crypto tax information-sharing network that covers the entire EU. Each member state must complete the transposition of this directive into its national law by December 31, 2025, to ensure the simultaneous implementation of DAC8 and MiCAR.

The linkage between these two regulations signifies that the EU is forming a "MiCAR regulation + DAC8 tax reporting" two-pillar compliance system. The former ensures that trading activities are compliant and transparent through a unified licensing and disclosure mechanism, while the latter closes the loop on tax collection through a data-sharing mechanism. This institutional design not only strengthens the tax authorities' ability to track cross-border crypto-asset flows but also effectively prevents common issues from the past, such as tax arbitrage and hidden offshore accounts. Furthermore, MiCAR's mandatory reserve and redemption system for stablecoins, as mentioned earlier, also provides a quantifiable basis for tracking funds for tax purposes. The daily mark-to-market, regular audits, and public disclosure of reserve assets enable regulators to accurately assess the asset backing and income sources of stablecoins, providing an objective foundation for taxing interest income, investment gains, and exchange differences.

4 What Investors and Institutions Should Do Next

Facing the systemic regulatory transformation brought by MiCAR, European investors and crypto firms should adopt proactive compliance and risk management strategies.

4.1 For Investors: Strengthen Tax Compliance and Reporting

The systemic regulatory shift is creating demand for automated tax compliance tools. For institutional investors with larger transaction volumes and more complex structures, relying solely on personalized tools is no longer sufficient to meet compliance and audit requirements. Individual investors can also use such tools to record transaction and income data in real-time to automatically generate tax returns, improving reporting efficiency and accuracy. Take FinTax Suite, for example. This system uses a modular architecture that can seamlessly integrate with mainstream ERP systems. Through a smart-rules engine and a multi-dimensional reporting system, it covers key processes like data capture, automated bookkeeping, report generation, and compliance audits, helping businesses achieve financial transparency and tax compliance in a global regulatory environment. FinTax Suite also supports audit-ready GAAP/IFRS standard financial reports, a dual-entry system for stablecoins and fiat, AI-OCR invoice recognition, and bank statement import functions, providing a comprehensive financial and tax management solution for companies with on-chain payments and high-frequency trading. Beyond this, multinational investors also need to pay attention to the cross-border reporting requirements under DAC8 and understand the differences in capital gains tax and VAT among various EU member states.

4.2 For Institutions: Prepare Your MiCAR License Application Early

For crypto exchanges, custody providers, and wallet services, obtaining MiCAR authorization is a prerequisite for entering the EU market. Institutions planning to enter the European market should communicate in advance with the regulators of an EU member state to clarify the length of that country's transition period. After all, while the bar for MiCAR authorization is high, once obtained, it grants access to the entire EU market, providing a significant competitive advantage for long-term growth.

Third-country firms wishing to provide crypto-asset services in the EU must also establish an entity within the EU and apply for CASP authorization under MiCAR. The only exception is the so-called "reverse solicitation" scenario, where a client initiates the service request entirely on their own initiative. It is important to note that the final report on reverse solicitation published by the European Securities and Markets Authority (ESMA) aims to tighten the scope of how reverse solicitation can be applied under the MiCAR framework. If a non-EU platform contacts EU clients through reverse solicitation without authorization, it could expose investors to legal risks.

5 Conclusion: MiCAR – Striking a Balance Between Regulation and Innovation

The EU's rollout of MiCAR marks the official transition of crypto-assets in Europe from a phase of "wild growth" to a more mature, regulated, and mainstream financial development system. It is both a response to risk and a provider of fertile, institutional soil for innovation. In the coming years, the interplay between MiCAR, DAC8, DORA, and other regulations will build a more transparent, secure, and efficient crypto market. For investors, compliance is no longer a burden but a safeguard for legitimate and long-term returns. For businesses, while MiCAR sets a high bar, it is also a passport to one of the world's largest crypto markets. For all participants involved, the implementation of MiCAR is not just a comprehensive compliance test; it is also a key window of opportunity to seize the moment and achieve a business leap. Only by proactively adapting to regulatory trends and deeply embedding the concept of compliance into corporate strategy and operations can one remain invincible in the new competitive landscape.

References:

1. https://www.aoshearman.com/en/insights/micar-under-the-microscope--part-7-prudential-and-capital-requirements-for-issuers-of-arts-and-casps?utm_source=chatgpt.com

2. https://www.centralbank.ie/regulation/markets-in-crypto-assets-regulation?utm_source=chatgpt.com

3. https://finance.ec.europa.eu/publications/digital-finance-package_en#digital

4. https://eur-lex.europa.eu/eli/reg/2023/1114/oj/eng?utm_source=chatgpt.com

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