The global landscape of crypto-asset regulations is diverse and, even though it is getting more complex, many regulators are still choosing to wait and see how this space develops and what others will do. Right now, all eyes are on the European Union and its bespoke approach to regulating crypto assets.
As part of an expansive digital finance package announced in September 2020, the European Commission, or EC, issued a regulatory proposal titled Markets in Crypto-Assets, or MiCA. The proposal is now making its way through the legislative process and is subject to intense debates. This important regulatory step has been accelerated by concerns over the increasingly fragmented national regulatory landscape for crypto assets within the EU.
The other important trigger for regulatory scrutiny has been the rise of stablecoins. Stablecoins have been around for a few years — with the first stablecoin, Tether (USDT), dating back to 2014 — but they received little regulatory attention until June 2019, when Facebook’s project Libra (which was later rebranded as Diem) was announced. It was a wake-up call for many authorities, as they came to realize that global stablecoins could quickly reach a large scale due to strong network effects, and that this could have systemic implications for the financial sector.
Related: New name, old problems? Libra’s rebrand to Diem still faces challenges
Crypto assets under MiCA
The EC stepped in to capture and regulate all crypto assets not covered by existing EU financial services and proposed a bespoke, comprehensive, mandatory regime for crypto assets under MiCA. The regulation will apply directly across the EU, without the need to transpose it into national laws, and will replace all national frameworks. It aims to provide legal certainty for the industry and market participants, and facilitate legal harmonization.
Related: Chasing the hottest trends in crypto, the EU works to rein in stablecoins and DeFi
MiCA establishes a set of uniform guiding principles for crypto assets that are already applicable more generally in the financial markets, including transparency and disclosure, authorization and supervision, set of the operation, organization and governance measures, consumer protection, and prevention of market abuse.
MiCA provides much-needed definitions and classifications of crypto assets. This is a welcome development that can help to consolidate divergent definitions and taxonomies used across different European jurisdictions and by different market participants. To capture the entire universe of crypto assets (except for crypto assets already covered by financial regulations), a crypto asset is defined very broadly under MiCA as a digital representation of value or rights, which may be transferred and stored electronically using distributed ledger technology or similar technology. This means that any asset put on a blockchain could potentially fall within MiCA regulatory requirements regardless of its nature and economic function. We have to wait for the final version of the regulation to see if any exceptions to this broad scope of application will be introduced in the negotiation process.
Related: The US has already lost the 2020 crypto regulation race to Europe
Categories of crypto assets under MiCA
MiCA identifies three regulatory categories of crypto assets:
- E-money tokens, which are used as a means of exchange and aim to achieve stable value by referring to the value of a single fiat currency that is legal tender, such as the euro or U.S. dollar. This would include stablecoins like USD Coin (USDC) and a single currency-pegged Diem (Libra 2.0).
- Asset-referenced tokens that purport to maintain a stable value by referring to several fiat currencies that are legal tender, one or several commodities, one or several crypto assets, or a combination of such assets. This would include the originally proposed, and currently no longer pursued, version of Libra (Libra 1.0).
- Finally, the third category of crypto assets is a catch-all for all other crypto assets. It would cover utility tokens and algorithmic stablecoins, but also possibly Bitcoin (BTC) and other similar tokens.
MiCA provides a set of comprehensive regulatory requirements for issuers, including different licensing and operational requirements depending on the type of crypto assets involved. The issuers of asset-referenced tokens and e-money tokens will have to be authorized and established in the EU.
This is certainly good news for those issuers already established and operating within the EU but creates an additional compliance burden for issuers outside the EU. Issuers of asset-referenced tokens will be subject to certain capital, governance and business conduct requirements, and issuers of e-money tokens will also have to be licensed as a credit or electronic money institution and will have to additionally comply with the operational requirements of the e-money legal regime. E-money tokens will have to be issued and redeemed at par value, and the holders will have to be provided with a direct claim against the issuer.
The issuers will be required to produce a white paper setting out important information about the project, including its main features, rights and obligations. Only certain projects and small value offerings will have the benefit of being exempt from this potentially expensive requirement. To address risks of larger projects (like global stablecoins), MiCA provides an additional, more stringent set of rules for “significant” asset-referenced tokens and e-money tokens. For such “significant” tokens, which are classified as such by the European Banking Authority, or EBA, on the basis of the criteria listed in MiCA, there will be stronger capital, investor and EBA supervisory requirements that cover governance, conflicts of interest, reserve assets, custody and the white paper obligations.
Crypto-asset service providers
MiCA also sets out a legal framework for the authorization and operating conditions of crypto-asset service providers, or CASPs. Any CASP will need to be a legal person registered in the EU and will have to be authorized in order to operate. Compliance requirements are similar to those under financial regulations and include prudential safeguards, organizational requirements and specific rules on the safekeeping of clients’ funds.
The list of regulated crypto-asset services also mirrors financial regulations and includes the custody and administration of crypto assets, operation of a trading platform, exchange of crypto assets for fiat currency and for other crypto assets, reception, transmission and execution of orders, placing of crypto assets and, finally, providing advice on crypto assets.
As with any regulatory proposal, MiCA is going through all the cogs of the EU legislative machine. This process will hopefully help to fine-tune MiCA provisions, remove frictions, address any issues and arrive at the most optimal regulation that meets the needs and expectations of all the stakeholders. After MiCA comes into force, there is still an 18-month delay in application of the regulation, except with regard to e-money tokens and asset-referenced tokens, to which the regulation will apply immediately.
MiCA will serve as a precedent for other countries to learn from and either to follow or to set themselves apart for a competitive advantage. It is an ambitious regulatory project. Calibrating such a comprehensive regulatory framework to govern rapidly developing innovation requires a meticulous approach — sufficiently prescriptive to provide legal certainty but flexible enough to allow for future developments.
It also requires careful balancing between four main objectives around which MiCA has been designed: legal certainty, support of innovation, consumer and investor protection, and market integrity. Mistakes will have EU-wide implications and will be complicated to reverse, but getting it right will be an EU-wide success and a huge opportunity for the region.
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.
This article is for general information purposes and is not intended to be and should not be taken as legal advice.
Agata Ferreira is an assistant professor at the Warsaw University of Technology and a guest professor at a number of other academic institutions. She studied law in four different jurisdictions, under common and civil law systems. Agata practiced law in the U.K. financial sector for over a decade in a leading law firm and in an investment bank. She is a member of a panel of experts at the EU Blockchain Observatory and Forum and a member of an advisory council for Blockchain for Europe.
The opinions expressed are the author’s alone and do not necessarily reflect the views of the University or its affiliates.
Polkadot parachains full of promise, but lack of launch date raises concern
Polkadot’s parachain auctions will mark the most significant milestone on its roadmap since the mainnet launch in 2020. Currently in the testnet on the Rococo network, the next stage of the launch will involve the rollout of parachains on Polkadot’s crazy cousin, the “canary network” Kusama. The rollout of Polkadot parachains on the main network will follow.
What does this mean? The Polkadot mainnet has officially been in live operation for nearly a year now. However, only the central Relay chain has been up and running, with the last 12 months of development focused on implementing the platform’s decentralized governance.
The parachain rollout is the final stage in allowing decentralized applications to launch on the Polkadot network. However, with the rollout now past its initial expected release date of Q1 2021 and with almost three months passing since the development roadmap was unveiled, there is still no exact date for when the deployment will eventually happen. So, what can we expect from this launch, and which projects will participate in the auctions?
How do the parachain auctions work?
Parachains are effectively shards on the Kusama or Polkadot networks, and the purpose of the auctions is to allocate parachain slots to projects wanting to operate on either network. The overall objective is to have 100 parachains operating concurrently. However, these will open up in batches, with the goal of having around 30 parachains operational within the first year.
Projects wishing to secure a Kusama parachain slot can participate in the auction by bonding their KSM tokens in a decentralized candle auction. These can be their own tokens, but a crowd loan mechanism is available for projects to source tokens from their communities.
A candle auction is a variation on the open auction where no fixed end time is given. This type of auction emerged in the 16th century when a candle was burned to determine the bidding time period. The idea is to encourage participants to make their highest bids as early as possible because they don’t know when the auction will end. Therefore, it prevents “sniping,” where a bidder swoops in during the final minutes with a winning bid.
Rather than a candle, a random number generator will determine the endpoint of each slot auction once bidding has been closed. Therefore, later bids will be disqualified if they come in after the retroactively determined closing time.
It’s worth noting that the successful bidders won’t “buy” their slots — only lease them, with the total value of the bid locked for the duration of the lease. Lease durations will be fixed (and the durations may differ between Polkadot and Kusama), and projects can bid for up to four successive periods. Therefore, the total duration of the bid will also be weighted into its value.
At the end of the final lease period, the slot will once again go up for auction.
Peter Mauric, head of public affairs at Parity Technologies — the company behind the Polkadot ecosystem development — said that it’s likely that competition will be fierce. Speaking to Cointelegraph, he said:
“Competition, especially for early slots on Kusama and Polkadot, is expected to be fairly intense, in my opinion. Because competitive auctions at the start are generally expected, I doubt projects will be severely disappointed, especially considering there is a new slot open every two weeks to bid on.”
Which projects will be bidding for a parachain slot?
In theory, any project can participate in the parachain slot auctions. However, they do need to have a codebase and either hold or have crowdsourced enough KSM or DOT tokens to outbid the competition.
Furthermore, the Kusama Council has stated its intent to award two Kusama slots to infrastructure projects deemed to be for the “common good” of the ecosystem. These are PolkaBTC, providing a bridge to the Bitcoin blockchain, and Snowfork, bridging to the Ethereum blockchain. Similarly, Statemint, a generic asset issuance platform, has been proposed as the first common-good project for the Polkadot network.
There have already been several projects that have expressed interest in participating. Acala, which aims to become Polkadot’s one-stop-shop for decentralized finance, will be bidding for its Kusama implementation, called Karura. Moonbeam, an Ethereum-compatible smart contract platform, will be seeking a slot for its Kusama version, dubbed Moonriver. And Kilt, which aims to bring decentralized credentials in the form of a universal log-on for Web 3.0 applications, will also be looking to secure a parachain slot. All three projects have been extremely active on the Rococo testnet and have active community participation.
Cointelegraph spoke with Dan Reecer, vice president of growth at Acala, about how the dual Kusama–Polkadot implementation will work in practice. He explained that both Acala and Karura aim to be the decentralized finance hubs of their respective platforms, and the project plans to run them concurrently in perpetuity. However, each has a role to play, as he stated:
“The difference between Karura and Acala is that with Karura, we’ll be more willing to take risks and experiment with new features and products. We are following the Polkadot ecosystem paradigm of testnet to experimental network (Kusama) to major network (Polkadot). Acala will remain the bank-grade, risk-averse network for DeFi on Polkadot with likely much higher TVL and assets under management in the Treasury.”
Despite the roadmap not having fixed any dates, it seems that projects are ready to go into production within weeks or even days of securing a slot. Derek Yoo, founder of the Moonbeam Network, confirmed that Moonriver is all but ready to deploy. He told Cointelegraph: “Moonbase Alpha has been running continuously since September 2020, and in that time, we have been able to release six upgrades to the environment, each with important new functionality,” adding:
“We have been able to iterate quickly because we have this stable testnet environment, and we feel that it has prepared us well for going live as a parachain.”
Ingo Rübe, CEO of Kilt Protocol, told Cointelegraph: “After winning a Kusama parachain slot, Kilt will go live within days rather than weeks. The functionality for decentralized identifiers (DIDs) and verifiable credentials is ready and has proven to be stable on our testnet.”
If demand for a slot indeed proves to be high, then many other projects will likely voice their interest in vying for a slot on Kusama, particularly considering that many projects have been waiting patiently for the parachain auctions without any confirmed date for when they’ll happen. Plasm, Darwinia, Robonomics and Crust are just a few of the other projects likely to participate.
What about prices?
Assuming that competition for the slots is high, then it’s a reasonable enough predictor for some bullish price action to come for KSM and DOT. On the most superficial level, more competition means bidders will be likely to go in high from the start. Because tokens are bonded for the duration of the lease, it will remove a share of the circulating supply of DOT and KSM from the markets, constraining supply.
However, the Kusama parachain auctions are the first live event of this kind, so there’s a chance that things might not pan out as planned. While the barriers to entry for acquiring a slot are set reasonably high, there is an outside chance that some actors may attempt to outbid the competition purely to sell it at an even higher price on secondary markets.
Indeed, this is a scenario acknowledged in the Polkadot documentation. There’s also the possibility that such an actor may attempt to “squat” on the parachain slot simply to prevent other projects from using it.
Such a scenario wouldn’t look good for the Polkadot ecosystem and would make it difficult for projects hoping to secure a parachain slot. About the price of tokens, it’s difficult to say. On the one hand, a bidding war could be positive for prices, but on the other, the reputational damage could negate any bullish effects.
Another unknown is around how the lease rules and continuing auction process may affect the overall stability of the Polkadot ecosystem. Projects that are already operating could lose their slot further down the line. Again, bidding wars at auctions might spell good news for token prices, but they could deter smaller projects from participating.
However, Parity’s Mauric doesn’t believe this will be a problem. He explained to Cointelegraph that the early parachains will most likely end up in the hands of well-established projects “that have been building their Substrate-based chains for years,” elaborating further:
“There are several options for a project that doesn’t win a slot on Polkadot at first, including deploying a parachain on Kusama or exploring deployment as a parathread in the future. Many application-layer projects will deploy on parachains as they launch, opening additional opportunities for teams and projects to collaborate and build on the active parachain while awaiting their own slot if that is their community’s goal.”
A word of caution
Ultimately, the hotly anticipated rollout of parachains does not just mean good news for the projects involved or those holding on to KSM and DOT tokens. While BTC and especially altcoins have experienced a boom in recent months, for example, the price of DOT has mostly gone sideways ever since the initial surge above $40 in mid-February. Further delays to the release will likely put more pressure on the price of the token.
Finally, when considering participating in the crowd loan process, beware of scammers. The Kusama auctions page holds a warning that there may be fake crowd loan campaigns doing the rounds. So, if you’re planning to stake your DOT or KSM in a parachain crowd loan, make sure that you’ve done your due diligence on the project in question.
None of this is to say that any of these potentially worst-case scenarios will come to fruition and negatively impact the milestone on the Polkadot journey. The project has a ready-made suite of projects that are ready to go, and from that perspective, this launch is perhaps a bigger deal than many other mainnet launches that subsequently have to work to attract development.
StarColl debuts Star Wars NFT collection
StarColl, an NFT marketplace and collection exclusively dedicated to one of the largest private Star Wars memorabilia collection is set to list digital twins of its catalog.
According to an announcement on Tuesday, early registration will begin on May 4 — “Star Wars Day.”
The Star Wars collection will feature over 800 limited edition collectibles from the iconic sci-fi movie franchise released as NFTs on the StarColl marketplace.
Each StarColl NFT is a digital twin of an actual physical item from the massive Star Wars collection. Owners of each NFT will also reportedly have the chance to include their names in the NFT metadata which will appear in all future StarColl traveling exhibitions.
Ownership of NFTs from the listing will also grant free lifetime passes to the StarColl global traveling exhibition.
The announcement also revealed that all metadata and ownership information is secured on the QAN blockchain platform — a decentralized network that is reportedly resistant to quantum search algorithm attack vectors.
Commenting on the robust security of the StarColl NFT collection, Johann Polecsak, chief technology officer at QANplatform said:
“NFT security is a neglected topic today. Nobody speaks about cybersecurity issues and pain points behind the NFT ecosystem. Source files of NFTs sold for thousands of dollars can be easily changed to memes by hackers. StarColl NFTs will be secured by the Quantum-resistant QAN blockchain, where metadata and ownership information is stored.”
NFTs based on pop culture references are quite common with artists and creators minting digital twins based on popular movies, songs, and other works of art.
Back in March, decentralized movie financing platform Mogul Productions announced plans to release NFTs in collaboration with comic book artist Rob Prior.
Celebrity NFTs are also becoming a regular occurrence at the intersection of blockchain art and pop culture. As previously reported by Cointelegraph, the likes of skateboarding legend Tony Hawk and rap-rock icon Mike Shinoda have also released their own NFTs.
WAVES price swells to new all-time highs, nearing $4B market cap
Real-world adoption and the ability to service the needs of a wide range of industries are key qualities to have for blockchain projects that seek long-term viability in an increasingly crowded and evolving landscape.
One cryptocurrency project from 2016 that has seen its price breakout to new highs in May is Waves (WAVES), a multi-faceted blockchain protocol that has seen significant growth in 2021 thanks to recent strides in decentralized finance (DeFi), nonfungible tokens (NFT) and real-world adoption.
Data from Tradingview shows that after hitting a low of $12.22 on April 25, the price of Waves has swelled more than 205% to a new all-time high at $37.61, with a record $1.24 billion in 24-hour trading volume leading to a 60% spike in price on May 3.
Real-world adoption ignites rally
The spark that led to the double-digit rally over the past week coincided with the announcement that Waves Enterprise had partnered with the Russian space agency Roscosmos to test a tool that utilizes blockchain technology in preventing intellectual property infringement.
@roscosmos and #WavesEnterprise launch a new blockchain service to protect IP rights. The service brings together subject matter experts from Roscosmos and elsewhere, providing smooth detection and violation management as well as token incentives.https://t.co/Vec6gNmTKG
— Waves Enterprise (@wvsenterprise) April 27, 2021
Momentum for WAVES has continued to build following the Roscosmos announcement thanks in part to the ongoing promotion of the Wave EGG NFT campaign, which engages community members and allows them to do tasks to earn EGG tokens and mint unique NFTs.
DeFi on Waves has also seen significant growth as evidenced by the network’s Neutrino stablecoin protocol surpassing $1 billion in total value locked on April 29.
The spike in the price of WAVES on May 3 was preceded by the May 2 tweet from the decentralized oracle provider Chainlink discussing its WAVES/USD data feeds that can easily be integrated into DeFi markets.
Chainlink’s decentralized oracle networks support the growth of #DeFi by securely bringing external data on-chain. Easily integrate #Chainlink’s pre-built WAVES/USD Price Feed to build derivatives markets around @wavesprotocol’s native asset, already relied on by @Bondedfinance.
— Chainlink – Official Channel (@chainlink) May 2, 2021
Additionally, social sentiment has also surged in tandem with price, according to the latest data from TheTie. In fact, the long-term sentiment score has risen from 53 to 93 in less than a week alongside a similar spike in Tweet volume.
With momentum still building due to active DeFi and NFT communities as well as real-world use cases catching the eye of governments and corporations looking to integrate distributed ledger technology, the WAVES protocol is a project to keep an eye on as blockchain adoption continues to expand into mainstream society.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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