Crypto-asset Issuances And Offers To The Public: The Differences Under MiCA

Executive Summary

This article examines the regulatory framework established by the EU's Markets in Crypto-Assets Regulation (MiCA) through a thorough exploration of two of its foundational concepts: crypto-asset issuances and offers to the public. By exploring four distinct technical modalities of crypto-asset creation, the article discusses how MiCA's definition of an "issuer" turns on control over crypto-asset creation rather than the mere technical act of issuance.¹ This control-based definition creates a functional exemption from the requirements under MiCA for decentralized protocols with no identifiable issuer for the relevant crypto-assets, while covering centralized issuers engaged in public solicitations for sale.

Similarly, the thesis that is laid out in this article in relation to "offers to the public" demonstrates that MiCA requires sufficiently-defined terms of offer to form binding agreements upon acceptance, not merely informational content about crypto-assets.

'This detailed interpretation based on the text of MiCA, which addresses only identifiable issuers with control over crypto-asset creation that engage in public offerings or otherwise seek trading admission, creates a targeted regulatory perimeter that is better suited to respecting technical innovation while protecting market participants.

1. A Preamble on MiCA

The Markets in Crypto-Assets Regulation (MiCA) regulates natural and legal persons, and certain other undertakings that are engaged in the issuance, offer to the public, and admission to trading of crypto-assets or that provide services related to crypto-assets in the European Union. ² It is worth noting that MiCA does not regulate crypto-assets in and of themselves, but rather it regulates persons undertaking activities in relation to crypto-assets.

The term "crypto-asset" under MiCA is defined as "a digital representation of a value or a right which may be transferred and stored electronically, using distributed ledger technology or similar technology".³ MiCA covers three categories of crypto-assets, namely:

1. E-Money Tokens (EMTs), which are crypto-assets that purport to maintain a stable value by referencing the value of one official currency.
2. Asset-referenced Tokens (ARTs), which are crypto-assets that are not an EMT, and which purport to maintain a stable value by referencing any other value or right or combination thereof, including one or more official currencies.
3. Other crypto-assets (OCAs), which are crypto-assets that are neither an EMT nor an ART, or any other crypto-asset excluded from MiCA under Article 2(4), such as financial instruments and structured deposits which are regulated by other EU legislation. "Utility Tokens" are a sub-set of OCAs, and are defined as "crypto-assets that are only intended to provide access to a good or a service supplied by their issuer". ⁴

MiCA is largely split into three parts when it comes to addressing the conduct of persons vis-à-vis crypto-assets. The first part, being offers to the public of crypto-assets and the admission to trading of crypto-assets on trading platforms, is covered under the following titles:

• Title II, regulating offers to the public and admission to trading of crypto-assets other than ARTs or EMTs;
• Title III, regulating offers to the public and admission to trading of ARTs; and
• Title IV, regulating offers to the public and admission to trading of EMTs.

Title V then goes on to regulate crypto-asset service providers (CASPs). Lastly, Title VI regulates market abuse.

The focus of this article will particularly relate to Title I (laying out the scope and the definitions) and the Preamble since these cover the very essence of issuances and offers to the public that will be assessed, while making sparing references to Titles II to IV.

2. Issuance

2.1. The Three Modalities of Crypto-Asset Issuance: Control Mechanisms and Implications

Crypto-assets enter circulation through three primary technical mechanisms, each with distinct implications for issuer control, decentralization, and governance. Understanding these modalities provides critical insight into the power dynamics underpinning different blockchain networks and tokens.

2.1.1. "Coinbase" Transactions: Protocol-Level Issuance

When Satoshi Nakamoto designed Bitcoin, the issuance mechanism was hardcoded into the protocol itself.⁵ New bitcoins come into existence exclusively through "coinbase" transactions - special transactions that reward miners for successfully validating blocks. This model has since been adopted by blockchain networks using consensus mechanisms other than proof-of-work, including proof-ofstake through modified mechanics. Such issuances occur through pre-defined inflation schedules and serve as a means of rewarding validators while shaping the network's economic infrastructure.⁶

Control Characteristics

Protocol-level issuance typically provides the lowest degree of centralized control over token creation. The issuance follows predetermined rules. For instance, Bitcoin's block reward automatically halves every 210,000 blocks.⁷ No single person can modify the issuance schedule without network consensus, with changes requiring coordination among multiple stakeholders (miners/validators, node operators, developers, users), often resulting in the "fork" of a network.

For a variety of reasons, once deployed, it would generally be extremely difficult for the original development team to unilaterally alter the token creation schedule (ergo the network's "monetary policy"). Even Satoshi Nakamoto, were they to return, would have no special authority to change Bitcoin's creation schedule. This constraint results in monetary policies that resist arbitrary changes.

The distributed nature of consensus required for protocol changes in most widely-used networks also creates significant inertia against modifications, effectively eliminating the potential of direct control resting with any single central authority.

2.1.2. Smart Contract Issuance: Application-Level Creation

With the emergence of blockchains with programmable application-layers like Ethereum, a new issuance mechanism became possible: tokens created and managed via smart contracts.⁸ This approach powers most tokens in the ecosystem today, from stablecoins to governance tokens to NFTs.

Control Characteristics

Smart contract issuance offers a spectrum of control possibilities:

• Contracts can be designed with varying degrees of centralized control;
• Administrative privileges may grant certain addresses special powers;
• Minting functions can be permissioned or permissionless; and
• Upgrade mechanisms may allow changing the smart contract's functionality.

At the highly centralized end, smart contracts might include:

• Privileged administrative addresses with unlimited minting authority;
• Ability to pause transactions or freeze assets;
• Backdoor functions allowing fundamental rule changes; or
• Upgrade mechanisms that can replace the entire contract logic.

At the decentralized end, contracts might be:

• Immutable (i.e., no person holds administrative privileges) with fixed supply or algorithmically determined issuance;
• Governed by token-holder voting systems with a sufficiently large and distributed set of holders;
• Without special privileges for the original deployer; or
• With time-locked or multisignature safeguards.

The original deployers of a smart contract token tend to have as much ongoing control as they programmed into the smart contract. Many projects begin with centralized control for flexibility during early development, with promises to transition toward decentralization over time.

2.1.3. Fork-Based Creation: Divergent Issuance

The third modality emerges from blockchain's open-source nature: the ability to copy an existing blockchain, modify it, and launch it as a distinct network with its own asset.⁹ Bitcoin Cash, the current Ethereum network (with Ethereum Classic representing the 'original' version of the code), and numerous other crypto-assets were created through this process.

Control Characteristics

Fork-based creation essentially results in a transfer of control to new stewards. Developers of the forked blockchain have no special authority over the forked asset, with 'governance' and future development falling under a new team's purview, along with a different supporting network of nodes, validators, and users. Initial token distribution typically mirrors the parent chain at the fork point, and technical direction tends to diverge significantly from the original chain.

This mechanism tends to highlight the decentralized nature of permissionless, open-source blockchain networks - if a sufficient number of members of a community disagrees with the direction of a project, they can "exit" through a hard fork while preserving the economic state up to the fork point.¹⁰

2.1.4. Hybrid Modalities of Issuances

While the three modalities outlined above are the predominant ways through which tokens are created, there may well be instances where a mix of the various modalities is present, particularly when one considers the myriad Layer-2 ("L2") networks that have emerged to process transactions off the main chain while inheriting the security of the underlying blockchain. These networks often employ issuance modalities that cater to their own infrastructure and governance systems, but typically such modalities are not sufficiently distinguished from the three identified above, and therefore should not be viewed as separate or novel categories.

2.2. The definition of an "issuer" under MiCA

The technical mechanism through which a crypto-asset is created fundamentally shapes the control dynamics within the ecosystem to which the token relates, which is important when determining whether a person or entity meets the definition of an "issuer" for a given token under MiCA.

MiCA defines an "issuer" as "a natural or legal person, or other undertaking, who issues cryptoassets".¹¹ Recital 20 furthermore states that "issuers of crypto-assets are entities that have control over the creation of crypto-assets".

Recital 22 adds an interesting dimension to the understanding of issuances under MiCA, as it states that "where crypto-assets have no identifiable issuer, they should not fall within the scope of Title II, III, or IV of this Regulation".

2.2.1. The concept of control over crypto-asset issuances

The notion of "control over the creation of crypto-assets" referenced in Recital 20 of MiCA is a crucial juncture for the identification of issuers, and therefore merits a detailed examination.

Control in this context extends beyond the mere technical act of deploying smart contracts or initiating token creation. Rather, it encompasses a meaningful ability to influence or determine fundamental aspects of a crypto-asset's issuance, supply, or essential parameters. This control can manifest through various technical, governance, and economic mechanisms, each with distinct regulatory implications. Reference is made to the UNIDROIT Principles on Digital Assets and Private Law which provide a useful comparative framework, defining control as encompassing "the exclusive ability to prevent others from obtaining substantially all of the benefit from the digital asset," "the ability to obtain substantially all of the benefit from the digital asset," and "the exclusive ability to transfer the [aforementioned] abilities to another person".¹² While these principles address control in the context of proprietary rights rather than regulatory classification, they offer valuable insights into how control can be conceptualized across legal frameworks.

2.2.1.1. Technical manifestations of control

From a technical perspective, control over creation typically manifests through privileged access to specific smart contract functions that govern issuance. The most direct form of control exists when a person possesses exclusive or privileged rights to create new units of a crypto-asset, including both initial creation and ongoing ability to expand supply. The person that can execute the mint function effectively controls monetary policy for the token ecosystem. Similarly significant is the ability to alter fundamental parameters affecting issuance, such as supply caps, distribution schedules, or monetary policy variables. These capabilities allow a person to modify the economic characteristics of the asset after its initial deployment, thereby exhibiting a notable element of control over the crypto-asset's economic attributes.

The power to modify the underlying code that governs issuance represents another form of control, particularly when such modifications can alter the economic characteristics of the asset. Upgradeable contracts essentially grant the authority to redefine the asset itself; functions such as pause/unpause capabilities that can temporarily halt token operations represent a form of indirect control over issuance by allowing a person to suspend creation, with these circuit-breaker mechanisms providing ongoing influence over the token's functionality. Furthermore, the ability to assign or revoke permissions that control issuance functions constitutes second-order control that can be equally significant from a regulatory perspective. Persons that can designate who has minting privileges effectively retain ultimate control over issuance, even if they do not directly execute minting operations.

Perhaps the most relevant technical manifestation of control is the retention of administrative keys that grant privileged access to the smart contract's critical functions. The person holding these keys can unilaterally execute actions affecting all token holders, tending to create an asymmetric power relationship. The presence of admin keys therefore transforms what would otherwise be a trustless, code-governed relationship into one requiring ongoing trust in the discretion and competence of the controlling person.

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Footnotes

1. The use of the term “issuer”, along with the very definition stipulated in MiCA, leave a lot to be desired. The modality of token generation may at times be incompatible with the normative understanding of issuance, and indeed one of the purposes of this article is to study the term “issuance” from various angles so as to address the legislative uncertainty.

2.  Article 2(1), MiCA.

3. Article 3(1)(5), MiCA.

4.  Article 3(1)(9), MiCA.

5. “Bitcoin: A Peer-to-Peer Electronic Cash system”, Satoshi Nakamoto < https://bitcoin.org/bitcoin.pdf>

6. “Proof-of-Stake vs Proof-of-Work”, Ethereum Foundation < https://ethereum.org/en/developers/docs/consensus-mechanisms/pos/pos-vs-pow/> 

7. “Bitcoin block reward, block size, block time”, Coinbase (https://www.coinbase.com/en-gb/learn/crypto-basics/bitcoin-block-reward-block-sizeblock-time-whats-the-difference)

8. “Introduction to Smart Contract”, Ethereum Foundation (https://ethereum.org/en/developers/docs/smart-contracts/)

9. “Forks and Contracts”, Max Boonen (https://www.b2c2.com/newspost/forks-and-contracts) 

10. “What are blockchain hard forks and soft forks?”, Kraken Learn team (https://www.kraken.com/en-gb/learn/what-are-blockchain-hard-forks-softforks)

11.  Article 3(10), MiCA.

12. Unidroit Principles on Digital Assets and Private Law, International Institute for the Unification of Private Law (Unidroit), September 2023 (https://www.unidroit.org/wp-content/uploads/2024/01/Principles-on-Digital-Assets-and-Private-Law-linked-1.pdf)