MiCA Act: Regulation of NFTs [COLD]

A downward trend was observed in 2022 which was also observed for the keyword “NFT” (Non Fungible Token). In the Google search engine, the number of searches for “NFTs” even reached the peaks in 2021. During bear market times, investors seem to lose interest in the NFT offer. Some consider this proof that the NFT market is an empty shell artificially expanded through speculation. However, this market raises concerns for the European legislator. In this sense, the MiCA law proposes to regulate it.

The basics of NFTs

NFT is known through the art market, due to its non-fungibility. Unlike other digital assets, an NFT has its own specifications. This singularity allows it to be a certificate of authenticity for a job. In general, there are two types of NFT: one consists of the work itself, the other is the support of a right. In both cases, platforms have been developed to enable the acquisition and management of assets in the form of NFTs. The intention of the buyers is usually to sell these acquired NFTs on the secondary market to make a profit.
However, the return of NFT in this segment may be reduced. NFTs are more than the art market alone, as presented here. From a legal point of view, its non-fungibility is not enough to include it in a legal category, and therefore in an applicable regime. Its protean nature requires the intervention of the legislator.

Potential changes in accordance with the MiCA law

Without a specific regime, MiCA risks changing this situation. This is a divisive proposal for a regulation of the European Parliament and the Council on digital asset markets. MiCA can be applied to three different types of properties. First stablecoins, payment tokens (to be a means of payment) and finally utility tokens (usable digital assets accepted only by the issuer intended to provide digital access of a good or service). Recital 8 of the settlement proposal that single cryptos, accepted only by the issuer and non-fungible with other digital assets and cannot be divided.

NFTs seem a priori to escape the scope of the text. However, MiCA determines to apply to non-fungible tokens that give their owners (issuers or holders) specific rights linked to financial instruments. In this case, the NFT will be considered as a security token and will be subject to the regulation of the Union law on financial services. The regulation therefore does not directly consider a typology of NFTs within its scope. This decision is surprising from a legal point of view. In fact, this typology can also be subject to the MiFID 2 directive that applies to financial instruments.

The future will tell us what regulations will be put in place. In fact, legislative intervention was only a matter of time. If the European Union is willing to provide a framework, the legislators of the Member States will have to deal with the question on a case by case basis. The complexity of blockchain makes it difficult to apply regulation. The legislator must manage the integration of the protection of the financial system and individuals, which must not abort the European players operating within this market.

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Same AYADI avatar

Same AYADI

In the angelism of intermediaries in the current monetary system, I oppose DeFi, digital assets and the metaverse. Lawyer in Luxembourg, I am interested in cryptocurrency investment funds.

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