Talking with Eva Kaili, VP of the European Parliament, on MiCA regulation

Talking with Eva Kaili, VP of the European Parliament, on MiCA regulation

Cointelegraph published an article in which I discussed how the European Union is moving forward in regulating the crypto-asset markets through Markets in Crypto-Assets and Transfer of Funds Regulation. This background was my starting point, and I had the opportunity to interview Eva Kaili (vice president of European Parliament), who is an expert on regulating new technologies. She has worked hard to promote innovation as a driving force in the establishment of the European Digital Single Market.

The interview below covers key points regarding MiCA. It also discusses some controversial legislative provisions, such as Decentralized Finance (DeFi), remaining out of scope, rules administrated through self-executing smart contract (Lex Cryptographia), and decentralized autonomous organisations (DAOs).

1 — Your efforts to promote innovation as a driving force in the establishment of the European Digital Single Market have been tremendous. Your experience as a reporter has been invaluable in the development of several bills that deal with blockchain technology, online platforms and Big Data. What are the biggest challenges that legislators face when they introduce bills involving new technologies and their solutions?

Technology is constantly evolving, so innovative solutions require some time to be developed and tested. Policymakers must take time to study how the technologies were created, consult with stakeholders, assess their impact on existing markets, and then make a decision about whether or not they should act. The best way to respond to technological developments is not to do so immediately with a legislative initiative. Instead, policymakers need to give time for the technology to develop, and to policymakers to educate themselves and digest how they affect current market architecture. Finally, it is important to suggest a balanced, tech neutral, forward-looking legislative framework. We in Europe have adopted a “wait-and-see” approach to technological development. This allows us to safely answer three basic questions: (1) How early should regulation be made? (2) How detailed should the regulation be? (2) How detailed should the proposed regulation be? (3) What scope should it have?

New challenges could arise in this environment. One example is whether to convert old rules into new instruments or create new rules for new instruments. The first is not always feasible and could have unintended consequences for legal certainty. Amendments or modifications might capture complex legislative frameworks. However, the latter requires time, consultation with stakeholders and interinstitutional scrutiny. It should be noted that these questions are key to determining the growth of the market and the timing to achieve it. They also determine the impact of regulation on other markets.

2 — The European Commission launched the Digital Financial Package in 2020. Its main purpose is to promote the competitiveness of the European Union’s financial sector, establish Europe as a global standard-setting body, and protect consumers from modern payments and digital finance. What is a regulatory framework required to define a competitive advantage in a particular jurisdiction?

As I said, it is crucial to think about the global geopolitical implications and effects of any regulatory regime for new technologies. The new global digital economy increases competition among jurisdictions because of the increased concentration of technological capability. In America, Europe, and Asia, for example, there are technological interdependences and dependencies between dominant market players and the geographical regions they control. In this context, digital products and services translate to power, have strong geo-economic implications, and facilitate “digital imperialism” or “techno-nationalism.” Thus, any prospective regulatory framework should be seen as a source of national or jurisdictional competitive advantage, generating robust, innovation-friendly, risk-immune markets. It could attract human capital to support innovation, and financial capital to finance innovation over time.

These principles were the driving force behind the DLT Pilot Regime, and the Markets in Crypto-Assets Regulations. We achieved two milestones: creating an unprecedented pan-European sandbox to test DLT in traditional European financial market infrastructures and the first concrete set rules regarding crypto. They cover everything from stablecoins to market manipulation, and setting the standard for how a regulatory approach to crypto markets.

3 — Blockchain’s initial reputation for being an “enabling technology” for fraud, illicit payments by drug dealers and terrorists via the “dark internet,” has made it difficult to regulate the technology. When you were invited to New York’s Blockchain Week 2018, only small jurisdictions like Malta and Cyprus were using the technology. Legislative proposals had been made to regulate it. Many regulators claimed that blockchain was a new trend at the time because they were ignorant of its capabilities. You soon realized that blockchain was more than just a technology to enable crypto-assets or crowdfunding tokens.

Blockchain was my infrastructure. It would allow me to create a variety of applications that could transform markets, businesses, and operational models. I also realized its strong macroeconomic impact. While the technology is still in its infancy, it is already being seen as the backbone and infrastructure of any IoT environment that leverages human-to machine and machine-tomachine interactions. Although it is difficult to predict how and under what conditions, its impact on the real economy will be significant. The rapid development of blockchain technology has forced government and business leaders to consider (1) what the future marketplaces might look like, (2) what the right organizational setting would be in the New Economy, (3) and what market structures are needed to ensure that the New Economy can not only survive economic competition but also generate and sustain inclusive growth rates that meet society’s expectations. The European Blockchain Observatory and Forum Initiative and the European Blockchain Services Infrastructure Projects are critical to this end. They aim to give the EU a significant first-mover advantage within the new digital economy, facilitating technological advancements and testing blockchain convergence with other exponential technologies.

4 — The European Union reached a tentative deal on June 30 regarding how to regulate crypto assets in the bloc. This gave the green light for MiCA, the main legislative proposal that it has to regulate crypto asset markets. MiCA was first introduced in 2020. It has been through many iterations. Some proposed legislative provisions have proven more controversial than others. Decentralized finance (DeFi), for example, is still out of scope. The nature of DeFi platforms such as decentralized trades seems to contradict the basic principles of regulation. Is it possible for DeFi to be regulated at this stage?

Market participants were critical of the Markets in Crypto-Assets Regulation’s presentation in September 2020. They felt it was missing decentralized finance. This regulation aims to decentralize financial service providers and make them independent from central financial institutions. DeFi runs in ideal circumstances with smart contracts in decentralized autonomous organizational structures leveraging decentralized apps (DApps), with no entity to identify. Therefore, the Markets in Crypto-Assets Regulation could not accommodate it. This regulation specifically addresses blockchain financial service providers that are legally established entities and is responsible for ensuring they meet specific requirements regarding risk management, investor protection, market integrity and liability in the event of failure.

DeFi is not an entity by design. At least, it doesn’t have the characteristics we are used too. In this decentralized environment, it is necessary to reconsider our definition of “the entity” to be liable in the event of misconduct. It could be replaced by a network pseudonymous players. Is it possible? But, pseudonymity does not fit with our legal or regulatory tradition. Not at all. It doesn’t matter how good the product or service is in terms of architecture, design, process, and characteristics, all should be accountable. The DeFi case is a good example of the problem that there is no one to blame. Decentralization is therefore more difficult for policymakers.

5 — The European Union’s efforts to regulate the cryptocurrency and blockchain industry began long before MiCA. The European Parliament passed its “Blockchain Resolution” on October 3, 2018. This was a historic vote and received the support of all European parties. What was the impact of the Blockchain Resolution’s passage on the European Union’s decision to adopt a regulatory leadership role?

The 2018 European Parliament Blockchain Resolution reflected the views of regulators on how to approach a technology that was still in development. The resolution’s main argument was that blockchain is more than a technology for crowdfunding tokens and cryptocurrencies. It also provides the infrastructure to support a wide variety of applications needed for Europe to remain competitive in the New Economy. This was the basis for the European Parliament’s Committee of Industry (ITRE), authorizing the resolution “Distributed Ledger Technologies & Blockchain: Building Trust with Disintermediation” to be drafted. It was this part of political entrepreneurship I felt I needed to do to help unlock the demand and encourage EU institutions to consider the possibility of regulating blockchain technology. When I wrote the resolution, I wasn’t just trying to create legal certainty, but also institutional certainty to allow blockchain to thrive within the EU single-market, facilitate the creation blockchain marketplaces, make Europe the best location in the world to run blockchain businesses, and set the EU legislation as a model for other jurisdictions. The Blockchain Resolution led to the European Commission drafting the DLT Pilot Regime, and the Markets in Crypto-Assets Proposals. These proposals reflect the principles of technological neutrality as well as the concept of business model neutrality that are necessary to encourage the adoption of digital technology of strategic importance.

6 — Different blockchain architectures exist, particularly those that are based on permissionless Blockchains. These provide disintermediation as well as decentralized governance structures with automation property. Do you think that these structures will evolve in the future? Will there be “Lex Cryptographia”? Rules administered via self-executing smart contract and decentralized autonomous organisations (DAOs), perhaps? If so, which principles or guidelines should regulators consider in this instance?

Technological advancements, the possibility of a global decentralized economy that uses quantum technology, machine learning and artificial intelligence along with blockchain technology will soon result in the creation of Lex Cryptographia. This code-based system will appear to be the best way to effectively enact law in this new environment. This would be a difficult task for politicians, policymakers, and society in general.

While navigating the “Lex Cryptographia”, critical questions will need to be answered at code level: What would such an system be programmed for? What types of information will it get and how do they verify? How often? How will network maintainers be compensated for their efforts? When the regulations are baked into the system’s architecture, who will ensure that it works as intended?

We need to expand our knowledge of what constitutes a “good regulation” in the context of Lex Cryptographia. This is a challenge that every country in the world faces. My suggestion is to use “sandboxing”, as we did with DLT Pilot Regime, to create an agile, yet solid space that allows both regulators and innovators to exchange knowledge and gain the understanding necessary to inform the future legal framework.

This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely those of the authors and do not necessarily reflect the views or opinions of Cointelegraph.
Tatiana Revoredo, a founder member of the Oxford Blockchain Foundation, is a strategist in Blockchain at Said Business School at Oxford. She is also an expert on blockchain business applications at The Massachusetts Institute of Technology. The European Parliament invited Tatiana to the Intercontinental Blockchain Conference. In Brazil, Tatiana was invited to the public hearing about Bill 2303/2015. She is the author two books, Blockchain: Tudo O Qu Voce Saber and Cryptocurrencies within the International Scenario – What Is the Position Of Central Banks Governments And Authorities Regarding Cryptocurrencies

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Amy Jimenez– Services My name is Amy Jimenez, and I am the main writer behind the"" for the ground-breaking and most fragile bits of knowledge into the most recent news in the services sector. I began my voyage of work as an autonomous investment advisor. I had around 4 years of involvement in this field. I am a free soul so; my energy for investigating the world has taken me to the countries over the globe and allowed me to report for a part of the best news affiliations. At present, I am a full-time manager as experienced in the account and began to utilize my capacities.

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