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White Paper on MiCA Regulation

MiCa Regulation

Article 5 of the Regulation of the European Parliament and of the Council determines the content and form of the white paper on cryptoassets. In this, its first paragraph establishes that it must contain, on a mandatory basis, the following information:

1. Detailed description of the issuer and presentation of the main participants in the design and development of the project;

2. Detailed description of the issuer's project, the type of cryptoasset to be offered to the public or whose admission to trading is requested, the reasons for the public offering of the cryptoasset or the request for its admission to trading, and the intended use of the fiat currency or other cryptoassets obtained through the public offering;

3. Detailed description of the characteristics of the public offering, in particular the number of cryptoassets to be issued or whose admission to trading is requested, the issue price of the cryptoassets and the subscription conditions;

4. Detailed description of the rights and obligations associated with cryptoassets, as well as the procedures and conditions for the exercise of such rights;

5. Information on the underlying technology and standards applied by the issuer of the cryptoassets for the purposes of their maintenance, storage and transfer;

6. Detailed description of the risks associated with the issuer of the cryptoassets, the cryptoassets, the public offering of the cryptoasset and the execution of the project.

All the information must be impartial and clear, so that its content can be deduced from a simple reading, and must be presented in a concise and understandable manner. In this sense, the role of the information contained in the white paper is particularly noteworthy and relevant, since it is determined at all times that it may not contain any statement on the future value of the cryptoassets, unless the issuer of the cryptoassets can guarantee such future value.

Regardless of this, the following shall be indicated, in a mandatory, clear and unequivocal manner, about cryptoassets:

1. They may lose their value totally or partially;
2. They may not always be negotiable;
3. They may not be liquid;


Once prepared, it will contain a statement where the management body will confirm that the cryptoasset white paper meets the requirements and that the information presented therein is correct and there are no material omissions.

The cryptoasset white paper shall contain a non-technical summary providing key information about the public offering of cryptoassets or their intended admission to trading and, in particular, about the essential elements of the cryptoassets in question.

Regarding the publication of the cryptoasset bank book, Article 8 of the Regulation of the European Parliament and of the Council establishes the obligation for issuers of cryptoassets other than asset-backed tokens or e-money tokens to publish their cryptoasset white papers on their website no later than the date of commencement of the public offering of the relevant cryptoassets or their admission to trading on a cryptoasset trading platform.

The white paper will remain available on the issuer's website - which must be public - for as long as the cryptoassets are in the hands of the public.

With respect to the modification of the white paperArticle 11 provides that issuers of cryptoassets shall amend the already published cryptoasset white paper to outline any change or new fact that may significantly influence the purchase decision of a future buyer of such cryptoassets or the decision of the holders of cryptoassets to sell or exchange them.

In addition, it shall immediately inform the public, through its website, that it has notified the competent authority of its home Member State of the amendment and provide a summary of the reasons for such notification. Following the amendment, they shall notify the amended cryptoasset white paper to the competent authority of their home Member State, including the reasons for the amendment, at least seven working days prior to publication.

If accepted and the modification occurs, the white paper will be time-stamped, identified as "applicable version", being available as long as the cryptoassets are in the hands of the public.

White Paper on MiCA Regulation
White Paper on MiCA Regulation

Regarding the content and form of the cryptoasset white paper on asset-backed tokens (Article 17 of the Regulation), its procedure is identical except that, as regards its content, it must contain:

1. Detailed description of the issuer's system of governance, including a description of the role, responsibilities and accountability of the third party entities;

2. Detailed description of the asset reserve;

3. Detailed description of the custodial arrangements for reserve assets, including segregation of assets;

4. In the case of investment of reserve assets, a detailed description of the investment policy in this regard;

5. Detailed information on the nature and enforceability of the rights, in particular any direct rights of redemption or claim on the reserve assets or against the issuer that are granted to the holders of asset-backed tokens and to any natural or legal person referred to in Article 35(3), including the treatment that may be given to such rights in insolvency proceedings;

6. When the issuer does not recognize any direct rights to the reserve assets, detailed information about the mechanisms to guarantee the liquidity of the asset-backed securities;

7. Detailed description of the complaint handling procedure.

In the event of modification (article 21), it shall deal with the following:

1. The governance system;

2. Reserve assets and their custody;

3. The rights recognized to the holders of asset-linked tokens;

4. The mechanism for the issuance, creation and destruction of asset-linked cards;

5. Protocols for the validation of operations with tokens referenced to assets;

6. The operation of the issuer's exclusive TRD, when the asset referenced tokens are issued, transferred and stored by means of such TRD;

7. Mechanisms to guarantee the repayment of the asset-linked tokens or their liquidity;

8. Agreements with third parties, among others for the management of reserve assets and the investment of the reserve, the custody of reserve assets and, if applicable, the distribution of asset-linked tokens to the public;

9. Liquidity management policy in the case of issuers of significant asset-linked tokens;

10. The procedure for handling complaints.

Regarding the content and form of the white paper on electronic money tokens (article 46), it follows the same procedure as the previous one, and must contain:

1. A description of the issuer of electronic money tokens.

2. A detailed description of the issuer's project and a presentation of the main participants in the design and development of the project;

3. An indication of whether the cryptoasset white paper refers to a public offering of electronic money tokens and/or the admission of such tokens to trading on a cryptoasset trading platform;

4. A detailed description of the rights and obligations associated with electronic money tokens, including the right of redemption and the procedures and conditions for the exercise of such rights;

5. Information on the underlying technology and standards applied by the issuer of electronic money tokens for the purposes of their maintenance, storage and transfer;

6. Risks related to the e-money issuer, e-money tokens and project implementation, including technology;

Utility tokens - everything you need to know

A utility token is a token characterized by two features: its fungibility and its purely digital object.

Tokens, data structures created and controlled by smart contracts, are the main mechanism for representing subjective rights in the new digital and decentralized economy. Although some sketches of them appeared in the Bitcoin protocol (the so-called colored coins), in reality, it was the emergence of Ethereum in 2014 that made the appearance and development of this institution possible. Tokens can be fungible or non-fungible, depending on the nature of the right represented. Fungible tokens are those that are identified by their belonging to a genus or class and that do not carry metadata that singles them out from others. The smart contracts that issue them usually conform to the ERC20 standard (in Ethereum) or one of its equivalents (for example, BEP-20 in Binance Chain). The issuing contract carries a table in which each electronic address is assigned a balance in tokens. Each time there is a transmission between two addresses, the amount of the transmission is subtracted from the balance of the source account and added to the destination account.

Utility tokens are fungible in nature, and moreover, as noted above, their object is purely digital. In this sense, in terms of their effects, the rights represented in cyberspace can be classified into two categories:

  • Rights existing in the external (physical-legal) world, but represented electronically. Their content, mode of transmission and effects are determined by the ordinary legal system. This group includes, among other assets, security tokens.
  • Purely virtual rights, which project their effects exclusively in the field of cyberspace, without the assistance of any outside authority being necessary for their exercise and defense. Often these rights cannot be seized by the ordinary courts. This is the case of rights in rem constituted over virtual parcels of the Metaverse or cryptocurrencies themselves.

Utility tokens would fall into this second category, insofar as they can only be exercised exclusively in cyberspace or parts thereof (e.g. user platforms). Examples of utility tokens include Filecoin or Sia, which grant their holders digital storage rights on remote computers, Golem, which is intended for the rental of computational power, or MANA, the native token of one of the most important metaverses currently in existence, Decentraland. Likewise, voting rights in DAOs are usually linked to the holding of so-calledgovernance to kens, with the principle that each token grants one vote.

In each of these cases, the effects of the token do not transcend beyond the blockchain. However, this does not mean that they are no longer of interest to the law. Cryptocurrencies have been considered as currencies by different resolutions of the Spanish Directorate General of Taxes, so that, in our opinion, any token that grants its holder returns in cryptocurrencies is considered a financial instrument and is subject to securities market legislation. This is what explains that within Spain (and in general, the European Union) often the massive issuance of utility tokens through ICOs, IEOs and IDOs is carried out, using for this purpose the procedures described by the Securities Market Law for the issuance of transferable securities, and subject to its requirements and limitations. It is hoped that the entry into force of the MiCA Regulation will contribute to increase legal certainty in this area and help to protect the interests of investors, who have often been subject to scams over the last decade.

How to buy land in the Metaverse?

Before we embark on how to buy land in the Metaverse, we pose the question of what is land in the Metaverse? One of the digital assets that people can buy and sell in the Metaverse is real estate. In simpler words, a Metaverse land is a digital real estate that can be bought, owned or exchanged within the Metaverse. It can be purchased using cryptocurrencies.

So how does it work? Metaverse lands exist in the form of non-fungible tokens(NFT). This means it is easy to prove their authenticity and ownership. Once purchased, the land offers a 3D virtual experience for the owner and visitors. Aside from that, the owner can construct a building on the land and use the building to display their digital art or use it for gaming, even, rent it out for events, housing or branded content. Others have created opportunities on their land, such as casinos and gaming, that provide users with fun and excitement while giving investors a decent return on investment (ROI).

Here is a brief, step-by-step guide on how to buy land in the Metaverse:

1. Select a Metaverse platform.

Choosing the right platform for your land in the Metaverse is a big decision that greatly affects the success of your investment. Each platform offers its own guidelines on how to buy land in the Metaverse, so it is important to review them before deciding. The most popular Metaverse, among others, where you can buy land are: Decentraland (built on the Ethereum blockchain), The Sandbox (has the largest number of plots of all platforms), Axie Infinity (role-playing game and a trading platform that allows players to develop their own Axies, which are digital creatures based on blockchain technology), etc....

2. Create your cryptocurrency wallet or NFT.

You will need to have a wallet where you can access your cryptocurrencies. There are many wallets available, such as Venly, Bitski, Coinbase Wallet, MetaMask, etc... It is important to make sure to check compatibility with the Metaverse platform you would like to use before making a decision.

Be sure to protect your password and recovery phrase, regardless of the wallet you use. This will help keep your funds safe at all times.

3. Link your wallet to the metaverse.

Each Metaverso platform has its own registration process. You will first create an account and then link your wallet.

4. Buy cryptocurrencies through exchange platforms and transfer it to your cryptocurrency wallet.

Obviously, each Metaverse has its own native currency and you can buy cryptocurrencies on exchanges such as, for example, Coinbase, Kraken, Binance... Using your account on your chosen exchange, you can use a credit or debit card to buy the relevant cryptocurrency and transfer it to your wallet.

5. Selecting your first piece of digital real estate

Finally! You are all set to buy your plot of land. The NFT you purchase contains coordinates of the area you control and shows where it is located on the Metaverse map. Once the transaction is confirmed, you will be able to see the NFT in your digital wallet and you will be registered as the new owner.

Becoming a Metaverse land owner can be a great investment by engaging in activities such as providing products or services virtually in the Metaverse, selling your land for profit or renting it out for income.

All of the above is much deeper and has ample possibilities of investment achieving great objectives, in VICOX LEGAL we will not hesitate to help you and accompany you to the end in everything you need. Do not hesitate to contact us to know much more about this new digital world in which we are entering, the new digital era.

BIBLIOGRAPHY:

Ortiz Alonso, V. (2022). A year in the metaverse: challenges and opportunities for law firms | Legal | Cinco Días. Legal | Cinco.Días / EL PAÍS.

How do stablecoins work?

The name stable currencies (in English, stablecoins) designate those virtual currencies that have (or pretend to have) a fixed intrinsic value, linked to fiat currencies or to the price of certain commodities. The stabilization of value represents a great advantage of these assets with respect to cryptocurrencies such as Bitcoin or Ethereum, since the volatility of the latter is one of the main circumstances that hinders their acceptance as a means of payment.

Although it is commonly thought otherwise, from a computational-technical point of view stable coins are not cryptocurrencies themselves, but rather are tokens controlled by smart contracts. The owners of these contracts are, in turn, legal entities, existing on the physical or legal plane, which undertake to reimburse the value of the stable coin, in fiat or commodity securities, to the holders of the same.

Depending on their method of value stabilization, stable currencies can be classified into two broad categories:

  • Algorithmicstablecoins: Stabilization mechanisms are intrinsic, consisting of algorithms that issue or redeem stablecoins within the blockchain depending on the supply or demand of the blockchain. They work in a similar way to when a Central Bank raises or lowers interest rates for the purpose of increasing the money supply in circulation. The algorithmic stablecoin with the highest market price at present is Dai, whose smart contracts are integrated into the DAO MakerDAO. Just as commercial banks can lend the money deposited by their customers to third parties, being obliged to retain on their balance sheet only a small percentage called "cash coefficient", Ethereum users can also deposit ethers in MakerDAO accounts and lend the deposited money to other users. In Dai, the cash coefficient is 33%, so that the deposit of about $150 in ethers authorizes the user's own lending of about $100 in Dai. MakerDAO and its smart contracts have so far managed to keep the value of Dai stable (around one dollar), using mechanisms such as changing the cash coefficient or varying the interest rates on loans. In other algorithmic currencies, it is oracles that make information about the quotation that the currency has in different markets(exchanges) enter into the blockchain. Based on this information, smart contracts, like central bankers, make the money supply expand or contract.
  • BackedStablecoins: In this case the stabilization mechanism is external. An entity with legal personality undertakes to reimburse investors, in fiat or commodities, the value of their digital assets. In the cases of USD Coin(USDC), Tether and Binance USD(BUSD), it is the Centre consortium and the companies Tether Limited Ltd and Paxos respectively that, by means of their reserves, guarantee the parity of their respective virtual currency with the dollar. In other stable currencies, such as the former Pound/Diem, holders are assured of their convertibility into assets in a basket that may include fiat currencies or commodity futures.

Since many stablecoins have lost their parity with the corresponding fiat currency or even in some of them their price has completely collapsed (as in the case of Terra), the public authorities have begun to intervene in the matter to protect the interests of investors. Thus, in the territory of the European Union, the stablecoins of the second category have been regulated by the MiCA Regulation in its Titles III and IV, which will be the subject of another article in this blog.

OTC trading of cryptocurrencies

OTC cryptoasset trading is simply the trading of cryptoassets directly between two parties in a closed trading market. cryptoassets directly between two parties in a closed trading market. The parties involved only have the private price they show and can negotiate deals based on the amount each party has or is interested in buying. Imagine a picture of two people engaged in private trade negotiations. On the one hand, one person is willing to sell assets at a given price, while the other party is willing to buy assets at a given price.

An OTC transaction occurs when both parties agree on the price of the transaction or exchange they agree to. A trade can be crypto-to-crypto or fiat-to-crypto, and, in both cases, the need for a "marketplace or trading desk" to effect the transaction is imperative. OTC markets or trading desks are professional platforms that deal directly with crypto buyers or sellers. They can be of two types:

  • OTC Trading Principal Desk

It involves the use of funds to purchase the requested assets at the clients' request. This, by extension, implies that the OTC trader is assuming the risk in the process on behalf of its client.

  • Agency Market OTC

They do not operate with their own funds and therefore do not assume market risk. In this case, clients have to pay a commission to the OTC trading market, allowing it to act as an intermediary on their behalf.

Why use an OTC cryptocurrency trading desk?

Large volume traders, institutions, private wealth managers and hedge funds benefit from cryptocurrency OTC desks. These buyers have large capital bases and the ability to trade in large volumes, with transactions typically ranging from $25,000 to $75,000. The OTC cryptocurrency broker typically sets these transaction limits.

Buying large amounts of cryptocurrencies is solved by trading with OTC trading desks. Through the main or agency OTC market, you can buy any amount of cryptocurrencies in a single order without stress.

Some advantages of trading cryptocurrencies using the OTC market desk:

  • Liquidity: this is the primary factor when it comes to over-the-counter trading. It is an open secret that cryptocurrency exchanges specifically have very low liquidity. Exchanges often find it difficult to execute a large order effectively, so they split that order into small chunks. On the other hand, buying cryptocurrencies through an OTC trading market minimizes the risk of price spikes, since most OTC trading markets can sell large quantities of cryptocurrencies.
  • Confidentiality: Exchanges in the OTC trading markets are a one-to-one affair, so there is little chance of third parties interjecting themselves into a transaction or becoming aware of it. This makes trades within this space essentially private. Therefore, customers can transact without any fear or threat.
  • Direct transactions: With OTC trading markets, buyers and sellers have the ability to transact directly without the intervention of third parties and without any restrictions. This directly solves the problem of scam schemes that often operate under the banner of third parties, commonly referred to as "stoppers". With direct transactions, buyers can track their sellers.

Finally, the question that moves every person to know whether to bet on some process is to know if it is worth using OTC cryptocurrency trading? If you want to exchange large volumes of fiat money for cryptocurrencies or large amounts of cryptocurrencies for cash, yes, it is worth using OTC trading.

In fact, it is the best way to operate if you are in that situation, as it saves you time and money and is much more convenient. And in VICOX LEGAL we will not hesitate to help you and accompany you at all times in the process with the confidence you deserve!

What does the Regulation of the European Parliament and the Council say about cryptoasset markets?

Regulation of the European Parliament and of the Council on crypto-asset markets.

Cryptoassets are one of the main applications of blockchain technology in finance. The new regulation proposed by the European Union we can define it as a set of measures aimed at further exploiting and supporting the potential of digital finance in terms of innovation and competition while reducing risks. The aim is to ensure that the Union embraces the digital revolution and leads it with the help of innovative European companies at the forefront, so that the benefits of digital finance are available to consumers and businesses in the Union. In addition, it is important to note that the proposal includes a pilot scheme on market infrastructures based on decentralized registry technology (DRT). As such, the proposal has four interrelated general objectives. The first objective is legal certainty, constituting a solid legal framework that clearly defines the regulatory treatment of all cryptoassets. The second is to support innovation to promote the development of cryptoassets and a more widespread use of DRT. The third, to put in place adequate levels of consumer and investor protection and market integrity because cryptoassets not covered by existing financial services legislation present many risks. Finally, the fourth objective is to ensure financial stability, including safeguards to address risks that could arise from stablecryptocurrencies.

The proposal is based on Article 114 TFEU, which confers on the European institutions the power to adopt appropriate provisions for the approximation of the laws of the Member States. Another objective of the proposal is to remove obstacles to the establishment of the internal market for financial services and to improve its functioning by ensuring full harmonization of the applicable rules.

It is important to note that the Commission initially envisaged two strategic options for the development of a framework applicable to cryptoassets not covered by current legislation:

1. Opt-in regime for unregulated cryptoassets. Issuers and service providers that decided to voluntarily participate in the EU regime would obtain an EU passport to develop their activities on a cross-border basis.

2. Full harmonization. All issuers (with the exception of small offerings) and service providers would be subject to EU law and would obtain the EU passport. Specific national regimes for cryptoassets would cease to apply.

As is known, the second option was the one chosen by the members of the Commission. With regard to its regulatory adequacy and simplification, the Regulation imposes on cryptoasset issuers the obligation to publish an informative document -called a cryptoassets white paper- which shall contain, among other things, a detailed description of the issuer's project, the type of cryptoasset to be offered to the public or whose admission to trading is requested, the reasons for the public offering of the cryptoasset, a description of the characteristics of the public offering or the number of cryptoassets to be issued or whose admission to trading is requested, among others (Article 5 of the Regulation).

At the economic level, it is estimated that the costs of supervision for each Member State could range between 350,000 and 500,000 euros per year, with a minimum cost of 140,000 euros, although these costs would be partially offset by the supervision fees that the competent national authorities would charge crypto-asset issuers and service providers.

The Regulations are made up of nine titles:

Title I (Articles 1 to 3): Subject matter, scope and objectives.
Title II (articles 4 to 14): Non-referenced cryptoassets (utility tokens) Title III (articles 15 to 42): Tokens referenced to assets.
Title IV (articles 43 to 52): Tokens referenced to e-money.
Title V (articles 53 to 75): CASP licenses (formerly VASP) Title VI (articles 76 to 80): Prevention of market abuse.
TitleVII (Articles 81 to 120): EBA and ESMA.
Title VIII (Articles 121 and 122): Delegated acts.
TitleIX (articles 122 to 126): Final and transitory provisions.

In future publications, we will be breaking down the content of each of the headings in order to provide a general overview of the Regulations.

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