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The European Union recently approved the Markets in Crypto Assets Regulation (MiCA), which came into force in June 2023, bringing crypto assets, crypto asset issuers, and crypto asset service providers under a single regulatory framework.
The MiCA regulations introduce increased transparency and create a comprehensive regulatory framework for service providers and issuers and compliance with anti-money laundering rules. Additionally, the new rules also cover asset-referenced tokens and stablecoins.
A Closer Look At MiCA
MiCA, or the Markets in Crypto Assets, is the new legislation adopted by the European Union on cryptocurrency, aiming to bring greater clarity to the crypto ecosystem in the EU. The introduction of the Markets in Crypto Assets legislation represents a significant step forward for the crypto industry and is the most significant effort yet to bring transparency to the sector. MiCA will provide stakeholders with a clear set of rules, definitions, and guidelines for companies operating in different spheres of the crypto space, such as custody, trading, and marketing of crypto assets.
MiCA also puts significant emphasis on stablecoins, which are digital assets whose value is typically backed by fiat currency, although they could be backed by other assets as well. It introduces heavy compliance requirements for stablecoin operators, thus ensuring that these assets are stable, secure, and not subjected to any fraud. MiCA also requires entities offering crypto assets to provide a whitepaper that contains information about the issuer, obligations, capital raised, and the underlying technology behind the asset. According to MiCA, this would help improve transparency and fuel technological innovation.
MiCA also mandates the recording of all sender and recipient information, regardless of the transaction amount. Against the backdrop of this emphasis on regulatory compliance, how will companies that operate with a focus on privacy operate?
Striking A Balance
Protocols must take a unique and innovative approach to ensure compliance with MiCA, with transactions conducted on their platform being private and secure but also auditable by the concerned authorities. As such, it is important for protocols to strike a balance between user privacy and regulatory requirements. For example, Dusk encrypts the user key with an auditor key. This means only the auditor can decrypt it. Users can utilize zero-knowledge proofs to prove that the auditor key was used to encrypt the user key. This innovative approach ensures compliance by combining digital identity, privacy, and encryption.
The new EU regulations are expected to considerably impact those protocols that do not have simultaneous privacy and auditability at the base layer. Protocols that are privacy-focused and do not feature built-in auditability will face considerable difficulties when it comes to gaining traction in the European Union. Many public and anonymous tokens will also face considerable challenges.
How Dusk Is Ready To Comply With MiCA
Dusk believes that regulatory clarity is critical for the broader adoption of blockchain technology and cryptocurrencies. The approval of the Markets in Crypto Assets Regulation rules by the European Union is a significant step towards achieving greater regulatory compliance and clarity in the crypto space. Through the combination of privacy and auditability, Dusk has put itself in the best position to comply with the new regulations.
Dusk is also working on its European Union Digital Identity (EUDI) ambitions and is leveraging Citadel as the underlying technology, allowing the protocol in a much more favorable position when compared to other crypto companies. Dusk uses privacy, a digital identity solution, two custom-made transaction models, and a proxied license to be compliant.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.