Research Article: Utility Tokens MiCA
This blog post summarizes the main findings of the article "Utility Tokens, Markets in Crypto Assets Regulation (MiCAR), and the Costs of Being Public" by David Florysiak (IU International University of Applied Sciences).
Florysiak, D. (2022). Utility Tokens, Markets in Crypto Assets Regulation (MiCAR), and the Costs of Being Public. Working Paper. Available at SSRN: https://ssrn.com/abstract=4295913 (opens in a new tab)
How much will it cost to publicly list a utility token under MiCA regulation?
Florysiak (2022) reviews the MiCA regulation with a focus on its rules for the public offering of utility tokens and the listing of utility tokens on a trading platform, as well as the associated costs of regulatory compliance for being public in the EU.
Significant direct and indirect costs for MiCA compliance
The expected resulting direct and indirect costs will be significant. They include drafting the white paper disclosure document, for which most token issuers will depend on external financial and legal expertise to comply with regulations, minimize litigation risk, and maximize offering success. Financial experts need to help set the offer price to avoid excessive underpricing (likely the largest cost factor) or assess mandatory disclosure of risk factors. The listing requires continuous mandatory disclosure of insider information, prevention of insider dealing and market manipulation, and includes high administrative sanctions for violations, all similar to issuers of financial securities in the EU.
Only larger digital platforms will list their tokens
Due to the relatively high costs of being public, Florysiak (2022) expects only larger digital platforms to list their tokens. The regulation is tough but a step in the right direction. It will likely lead to a significant reduction in the fraction of fraudulent token issuers and thus prevent total market failure while allowing for careful innovation."
References
Florysiak, D. (2022). Utility Tokens, Markets in Crypto Assets Regulation (MiCAR), and the Costs of Being Public. Working Paper. Available at SSRN: https://ssrn.com/abstract=4295913 (opens in a new tab)