MiCAR EU Law: What Crypto Industry Did Not Expect

The Markets in Crypto-Assets Regulation entered into force on 30 June 2024 for stablecoin issuers and 30 December 2024 for crypto-asset service providers. It was supposed to create legal certainty for the European digital asset market. The outcome has been rather different. EUR stablecoins now represent approximately 0.2% of global stablecoin market capitalisation; Tether chose exit over compliance; and nine European banks announced a consortium to issue a joint stablecoin precisely because existing MiCAR-compliant offerings failed to achieve scale. The regulatory architecture that was meant to protect European consumers may instead ensure that Europeans seeking alternatives to traditional banking find no alternatives within the regulated perimeter.

MiCAR treats e-money tokens (EMTs) as a technological variant of electronic money under Directive 2009/110/EC. Article 48(2) provides that EMTs “shall be deemed to be electronic money,” incorporating them within the existing Electronic Money Directive architecture while adding crypto-specific requirements. This nested classification carries practical consequences: EMT issuers must satisfy both EMD2 authorisation requirements and MiCAR-specific obligations simultaneously. Where PayPal operates under one regulatory layer, a stablecoin like Circle’s EURC operates under three: the Payment Services Directive defines it as “funds,” the Electronic Money Directive governs its issuance, and MiCAR imposes additional prudential requirements including reserve composition rules and white paper obligations. Each inner category inherits the regulatory requirements of its enclosing framework while adding layer-specific obligations.

The Travel Rule and Self-Hosted Wallets

MiCAR addresses licensed intermediaries; it says nothing about individuals who hold their own cryptographic keys. That gap is filled by Regulation 2023/1113 on information accompanying transfers of funds and certain crypto-assets, commonly known as the Transfer of Funds Regulation (TFR). For transactions exceeding €1,000 involving self-hosted addresses, crypto-asset service providers must “take adequate measures” to verify ownership or control of the address under Article 14(5). The regulation requires CASPs to identify “unusual or suspicious patterns of transactions” and “situations of higher risks” involving self-hosted addresses per Recital 45. The EBA’s Travel Rule Guidelines (EBA/GL/2024/11), applicable since December 2024, mandate that CASPs maintain whitelists of verified addresses and may de-whitelist those deemed high-risk.

The implications extend beyond compliance costs. Ledger SAS, the French hardware wallet manufacturer, warned in 2022 that the TFR “would create a massive new honeypot of financial transaction data coupled with P[ersonally] I[dentifiable] I[nformation]” and argued that pairing blockchain addresses with home addresses creates “a recipe for disaster” enabling targeted attacks against crypto holders. Article 37 of the TFR mandates the Commission to assess by June 2026 whether additional restrictions on self-hosted wallet transfers are necessary; the regulatory endpoint may not be verification but effective gatekeeping approaching prohibition [Ledger SAS Letter ||| EBA Answer ||| Ledger SAS Public Release].

Self-Hosted Wallets and Bank Accounts

The distinction between a self-hosted wallet and a traditional bank account illuminates MiCAR’s regulatory philosophy. When an individual opens a bank account, a contractual relationship emerges. The bank maintains a ledger recording the holder’s balance; the holder agrees to terms specifying conditions under which the bank may freeze funds or impose charges. The holder’s claim to value exists only insofar as it appears in the bank’s database. A self-hosted wallet operates differently: the holder controls cryptographic keys without any intermediary, and ownership is established by the blockchain record rather than by institutional ledger entries. Under traditional banking logic, transferring value to someone without an account relationship with the same institution requires correspondent banking arrangements. Distributed ledger technology eliminates this intermediation; value moves peer-to-peer between addresses regardless of whether any contractual relationship exists with the token issuer.

MiCAR reintroduces intermediation through regulatory design rather than technological necessity. Stablecoin reserves must flow to credit institutions under Article 36. Self-hosted wallet transactions must flow through licensed CASPs under the TFR. Every pathway between fiat currency and crypto-asset ownership now routes through the regulated banking perimeter. The verification requirement is not a prohibition in the legal sense; it is a compliance friction that routes transactions through banking-integrated intermediaries. What emerges is not decentralised finance but rather centralised finance operating on distributed ledger infrastructure.

Contractual Claim versus Statutory Redemption

Traditional electronic money under EMD2 creates a contractual relationship between holder and issuer. The Court of Justice confirmed in Case C-661/22 (ABC Projektai) that “the minimum requirement for the classification of an activity as the issuance of electronic money is a contractual agreement between the user and the electronic money issuer.” E-money tokens present a different reality. An individual who acquires EURC through an exchange possesses tokens without any contractual relationship with Circle. MiCAR resolves this tension through Article 49, which establishes that EMT holders possess a legal right to reimbursement at par value by operation of law rather than by contractual agreement. The holder’s claim against the issuer arises from the token itself rather than from a contractual account relationship; anyone holding an EMT may demand redemption regardless of whether they ever contracted with the issuer directly.

MiCAR versus the GENIUS Act

A comparison with the United States’ Guiding and Establishing National Innovation for US Stablecoins Act reveals two fundamentally different regulatory diagnoses. The American approach treats stablecoins as a new category of payment infrastructure, permitting non-bank issuers to participate and requiring reserve backing in Treasury securities rather than bank deposits. The World Economic Forum observed that “the GENIUS Act eschews bank-related risks by prohibiting issuers from holding longer maturity bonds in their reserves” and does not require reserves to be held in banks, which “could introduce credit risks from banking into stablecoin activities.” MiCAR, by contrast, mandates that at least 30% of reserves (or 60% for significant stablecoins) be held as deposits with credit institutions. Tether CEO Paolo Ardoino warned that this requirement would “put significant pressure on the financial system, especially on small and medium banks” and that forcing compliance could cause some banks to fail, creating the systemic risk the regulation purported to prevent. Tether chose not to seek MiCAR compliance; USDT was delisted from major European exchanges including Coinbase, Kraken, and Binance by March 2025. EUR stablecoin liquidity declined approximately 18% in Q1 2025, while compliant alternatives captured less than 2% of the market previously served by USDT.

Conclusion

MiCAR presents several features that diverge from what the crypto market anticipated. First, the nested regulatory structure means EMT issuers face dual compliance burdens unknown to traditional electronic money institutions. Second, the reserve requirements concentrate risk within the European banking system rather than dispersing it across sovereign debt instruments as the American framework contemplates. Third, the Travel Rule framework for self-hosted wallets reintroduces the intermediation that distributed ledger technology was designed to circumvent. Fourth, the statutory redemption right under Article 49 represents a conceptual departure from the contractual model governing traditional e-money, yet it operates within an architecture that otherwise channels crypto-assets back into banking relationships. Whether these outcomes reflect deliberate policy choices or unintended consequences, the market has rendered its verdict: EUR stablecoins remain marginal in global terms, and non-compliant alternatives have migrated to unregulated channels rather than disappearing.

This article provides a summary overview of selected issues arising under MiCAR and the Transfer of Funds Regulation. For audience needed deeper analysis, this topic is examined across a series of essays exploring the EMT framework, self-hosted wallet requirements, the contractual versus statutory redemption distinction, & examinng with the US GENIUS Act. That series may be accessed at the author’s professional landing page: Crypto in EU: MiCAR, Wallets & Travel Rule.

Stay informed with the latest legal developments at Global Law Experts