Stellar & MiCA: a Match made in Heaven?

Stellar & MiCA: a Match made in Heaven?

May 29, 2023

The Markets in Crypto-Assets (MiCA) regulation introduced by the European Commission in September 2020 is a proposal aimed at providing a legal framework for crypto-assets within the European Union (EU). Its objectives include ensuring legal certainty, supporting innovation and fair competition, protecting consumers, investors, and market integrity, and ensuring financial stability​ (1)​.

The MiCA regulation is set to apply from the end of 2024 and will apply directly across the EU, without any need for national implementation laws. The regulation focuses primarily on e-money tokens, asset-referenced tokens, and utility tokens. Crypto-assets offered to the public, other than e-money tokens or asset-referenced tokens, are also within the scope (1)​ of the regulation​​.

Issuers of crypto-assets falling under MiCA are subject to obligations such as the publication of a whitepaper, the necessity to be authorized to issue crypto-assets, compliance with certain prudential rules when marketing crypto-assets, and the obligation to act honestly, fairly, and professionally towards crypto-asset holders​ (1)​ .

On the other hand, Stellar, an open-source and not for profit blockchain platform, has established standards that may align with the MiCA regulations. One of these is the Stellar Ecosystem Proposal (SEP) 0012, also known as the Know Your Customer (KYC) API. This standard defines a way for Stellar clients to upload KYC information to companies bridging into Stellar called Anchors and other services. It allows a customer to enter their KYC information once and use it across many services without re-entering information manually. The KYC API also handles image and binary data, supports the set of fields defined in SEP-9, and supports authentication via SEP-10​ ​ (2)​ ​.

Another relevant Stellar standard is SEP 0008, which provides a protocol for regulated assets. Regulated assets are those that require an issuer's approval on a per-transaction basis. This standard identifies such assets and defines the protocol for performing compliance checks and requesting issuer approval​ ​ (3)​ .

Leveraging SEP 8 Stellar does provide the necessary tools and protocols to issue a MiCA-compliant crypto asset. However, it's crucial to note that achieving compliance with regulations such as MiCA would require not only the technical implementation of these standards but also adherence to the specific legal and regulatory obligations outlined in the MiCA regulation.

Therefore, while Stellar provides the technical infrastructure to support compliance with such regulations, the actual issuance of a MiCA-compliant asset on Stellar would also depend on the actions and policies of the issuing entity. It is recommended to consult with a legal expert or regulatory advisor to ensure compliance with all relevant laws and regulations.

At BPV we help companies issue MiCA compliant assets with a suite of services and software solutions that help with security custody, retail customer onboarding and integration into the stellar network that cover the above SEP standards and more.

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