DAPPCON 2025: Navigating the Legal Landscape: Crypto Regulation in 2025 and Beyond

Transcript

[Applause] So, welcome. We're here to talk about crypto regulation in 2025 and beyond. I have here a great panel uh that covers topics that have been discussed in the crypto legal space for a while now. And um before start with uh getting into the individual areas, I'm curious to know uh from each of you what is uh the current state of implementation of Mika.

Do I start? Yes. Hi everyone. Uh so what is happening at the moment is that Mika is applicable. That means that when it comes to stable coins specifically, Patrick will say more about it. Uh it's already applicable. So it means that stable coin issuers in the EU have to be compliant with Mika. The second part that regulates uh issuance of tokens and also stable coin uh basically service providers so CASPs as we call them. Uh it really depends on the member state. uh some member states have already implemented Mika or they have this deadline that has already expired and it basically is implemented for some it depends I think that uh the last one is going to be uh let's say France is one

of them that uh the deadline for the application is going to be in a year so uh end of June 2026 until then all the crypto as a service providers have to be compliant with Mika so that's very briefly of course we have a lot of other open questions. There's a lot of discussions between national competent authorities themselves because those are the one that are supervising and giving licenses and we do have 27 of them plus three in the European economic era. So you can think that there might not be you know the uh the discussions might not be identical with all of them and uh there are some open questions at the moment where we see that they might be differently answered by different

national combatant authorities. So this is maybe a challenge at the moment. Yeah from from my angle. Hi everyone I'm Patrick. Great to be here and uh certainly a difficult fast follow for us right straight after Vitalik and to jump right into Mika but um so so from from my point of view it's um going well so as Marina mentioned for stable coins it's been roughly a year now um there are roughly a dozen compliant Mika compliant stable coins out there um both on the euro side on on the dollar side we're super proud to be the the largest Mika compliant issuer for now and we have invested a lot of resources into that. On the stable coin side, there are still a few um I would say discussion

topics um like the interplay between the payments regulations that applies to EMTs or not. And the EBA has recently published an opinion on that and that remains a big topic for the different national authorities on on how to how to uh implement that. And I think overall what we've seen is that Mika is being implemented as expected at the end of the day. The companies are applying for their for their licenses. Um those tokens that have decided not to seek regulations are slowly but surely being delisted and clarity is provided by the authorities where needed. So I think on the regulatory side it's

proceeding. On the market side, it's way too early to tell whether this entire endeavor is successful or not. Right? We're we have to let it settle, I think, for a year or two or three and then probably come back here and look at what are the volumes at at Mika regulated CASPs. Are they able to tap into global liquidity? What are volumes of Mika regulated stable coins? How are they being used in in Europe? And what what are the regulatory barriers to that? So on on the market side, I think it's it's it's way too early. Um but promising start.

Yeah. Hi everyone. I'm Jacob. Um I'm helping the product team at safe um to kind of steer the the new environment and there we're facing the challenges around um yeah interfacing with decentralized products and protocols and if that is kind of a a centralized bottleneck that might fall into certain kinds of um regulations and um yeah I'm working with the product team and I feel like we have um found a path for ourselves um but I I guess it's the challenge that it's a very modular kind of um platform that we have and we always have to dig deep into the different features that we um plug into our platform basically and understand

that they are truly decentralized and then steer clear of of micro regulation. Hi everyone, I'm Karan. I'm at Nosis. Um and coming more I guess similar to to Jacob coming more from a kind of decentralized infrastructure perspective. Um, I think it's still unclear where Mika is going to fit in to all of that. There's still questions around how DeFi might be caught. We've already seen diverging opinions from different regulators on how they view that. Um, and that remains to be seen how how it plays out across the rest of the member states. I think it's also too early to say how successful or unsuccessful Mika has been because, you know, many countries within the EU still

haven't even implemented their local laws to give effect to that. So there's many places in Europe where if you try to apply for a Mika license, you you literally cannot today because there isn't even an authority that's designated um to supervise that, right? Um the other thing which will be really interesting to see I think is how many registered VASPs actually make that conversion over to CASPs, right? because I think there's a few thousand that were registered before Mika came into force and there's only I would say 20 or so that are regulated as calfs today. So there'll be I think over the next 12 to 18 months a lot more visibility on the willingness of

projects to be fully compliant whether it makes sense for them to pursue that kind of full licensing regime in Europe or whether we start to see more kind of regulatory arbitrage in places like the US where there's a much more favorable environment or other jurisdictions that trying to attract more projects and create more favorable environments. So definitely still wait and see. Um but still a lot of unanswered questions with in respect how Mika might apply to DeFi, self- custody and and other um uh you know products and services that remain core to the values of decentralization.

And uh Jacob, you mentioned the MER system that SAFE is using. Um Mika does not define what decentralization is. So how do you navigate in this landscape? Right. So the core is uh obviously self- custody. So that um is obviously a big benefit that we have. Um but then we uh try to help our users to interact with D5 protocols and there we try to um understand you know what are we implementing and at what level and um there we have like a modular approach where we have safe apps um that can be onboarded in in our app store. Um but we also have deeper integrations and there we're currently exploring I know how

deep can we integrate and and kind of be on this sliding scale between um you know perfect UX and um uh yeah staying you know handing over to another service clearly um showing okay this is now the responsibility of somebody else and not not us. M and Marina, you speak with regulators. You are the bridge to the industry with the European crypto initiative. So where do you see um us moving to um there is then savings and investment union that is arriving? What other regulations should builders and developers be aware of? Yeah. So in the previous mandate, the European

Commission was really focused on Mika. they were discussing the anti-moneyaundering laws and the travel rules. You have heard uh very focused on on crypto assets. Now this is done for them like so in Brussels more or less they have already decided this the big decisions and you know the licensing is really happening on a national level but with the new commission start starting with the new year 2025 they are focusing on tokenization. This part I think is could be interesting for for the industry uh just because it's it's something that many projects are looking into connecting D5 thread file similars uh but at the same time there are questions that are opening up uh mostly on the infrastructure level so thinking

about are there any limitations for permissionless blockchain to be used in tokenization when it comes to tokenizing bonds and shares etc. Of course, this is where we come in and try to explain that it's it's perfectly fine and this should be done. Of course, uh but there are questions opening up and this is new thing because in the past we again mostly discussed the crypto assets uh in a way nature. So is it a security a utility etc. And now we go more into the technical aspect which is pretty interesting in a way. And uh you might have heard also of the le uh recent European data protection board guidance on uh blockchain how to use GDPR when it comes to blockchain and those were

really strict as well. Um it's not a regulation just to be clear. It's really just a guidance for now a draft. We have responded if you're interested you can go on our website EUCI and and find the responses there. But it is something that needs to be answered and I think it does require the industry to go and talk to regulators and explain the potential of this uh this industry this tech uh for it to be used in different um you know industries and specifically within the EU uh where we do have a pretty strict data regulation not only financial regulations so uh it's also topic that need to be addressed.

Maybe I can just add to that like GDPR is definitely one aspect. We're already starting to see other forms of regulation emerging which are going to have an impact on this industry. Right? So we're think seeing things like DORA digital operation resilience act that has a major impact on regulated financial services providers. So that's in addition to MIA, in addition to payment services or MIFID, it brings a new level of regulatory compliance and there's also proposals now to introduce uh cyber resilience regulations for products that fall outside of the scope of financial services where you need to have sufficient you know overview and due diligence on the entire supply chain of technology providers that make up the tech stack through which you provide

your services and that raises new questions. So if tradi now want to access defy how do they comply with those measures who do they go to you know in many cases defies are run by communities or dows um so it's going to present some challenges um but I think the message is that you know ma was one aspect GDPR was has been there for some time which there's always been that conflict between you know data protection and blockchain now we're starting to see other elements that are also going to have regulatory impacts on on the industry. So Karan uh we heard last week from the US that DeFi platforms should not be should not have

regulatory barriers. So where do you see DeFi heading the next month or months or years? I'm still very bullish on on DeFi as a technology and what it gives people access to. Um, I think that we will still continue to see innovation around the world. For the moment, I think we've we're in a in a space, at least in Europe, where there doesn't seem to be too much enforcement. Um, but there are differing opinions within different member states as to where DeFi should fall. I think everyone was under the impression that you know Mika wasn't there to regulate DeFi and so far it's not but this is

where there's different interpretations on who is an intermediary right and to Jacob's point earlier does an interface qualify as an intermediary that should be caught under under under uh Mika and I'm not sure what the answer is there um but I think we still have a lot of work to do as an industry to make sure that we carve out a path for DeFi because it is, you know, true to the values of of, you know, blockchain permission. There's credibly neutral um and access to everyone which, you know, many aspects of the traditional financial system still exclude a large proportion of of of the population. M and Patrick when we see the expansion of circle during the

past six years why Mika was discussed and finally implemented um and when we see how liquidity pools and defy are USD centric um where do you see a possibility for European stable coins to gain significant market share and is it realistic I'm relatively optimistic but obviously I I don't think we should expect a hockey stick development overnight. I think it's rather steady and slow growth that we'll see over the next few years.

We're quite encouraged ourselves um by recent growth of uh the EURC, our Euro denominated stable coin, which essentially when we launched it, you know, under Mika officially roughly a year ago, it was around like 30 40 million market cap. Now at least we're at roughly 160 170 I believe. So there has been some growth and part of it was powered by DeFi. So I I personally think that as those different worlds converge for example DeFi comes is more and more integrated into into fintech so the the DeFi mallet thesis to some extent but also into tradi. So if people start for example um collateralizing their crypto

assets to take out a loan and finance their house or their car or whatever I think this will increasingly happen in the currency those people use on a day-to-day basis in in their jurisdiction and here in the euro area it's the euro. So I I I I expect some growth there. Same for you know real world payments use cases like crossber transfers. I do think that for example once we build those onchain FX pools let's say USC euro or other stable coins you will have increasing volumes and increasing uh usage of euro stable coins also for that part even if the actual transfer happens in a different stable

coin you need the euro for the on and off ramp and for some corridors where the euro is particularly strong let's say um the euro area and um you know um North Africa or Turkey or like um southeastern Europe. I I do think that the euro euro stable coins will increasingly see usage as as a crossber payments tool. So let's let's wait and see. I don't want to sound too bullish, but I think there are some real world use cases both in DeFi and crossber payments in capital market settlement where the euro will play a major role.

Are there any thoughts from the panel? I think that's a huge opportunity also for for the crypto space in general. Um we are also very closely um looking at this and uh it stands for kind of this merge of of two worlds and um I think the challenge would be um to kind of uh identify these new intermediaries that that come out of our space um and kind of find a way how they can best interact with the old guard so to speak and um I think we are on the right path here and and stable coins stand for that um and um there's more to be clarified on the on the product side, on the application

side. Um, and that's where we need more clarity that Micah so far does not bring. Um, but um, I'm I'm optimistic that we we will get there with good products. Just just to add one tiny thing, I think what's increasingly important also for Mika and Europe is we have settled this framework, right? And so I think we should start and increasingly we should start looking outside of Europe and find ways how to make this framework compatible with other global jurisdictions, major financial jurisdictions because this is where then the real power sits in my opinion. We're talking about stable coins, crypto assets, DeFi inh inherently natively global services and products. And so

Mika alone won't take us too far. But if we find a way for example to make Mika compatible with the upcoming US rules, UK rules, uh Singapore etc. to allow for crossber usage of those assets, crossber usage of regulated services across the board. I think this is where the where the real power um waits. Mhm. So I would like to close our discussion with some final thoughts from all of you. So if you would have um some ideas for developers or builders, what should they be aware of during the coming months or years?

I think first and foremost, it depends on what you're building, right? uh if you're building a trading application, you're building some kind of synthetic stable coin, or you're building um a lending protocol, there's going to be much more regulatory implications um in those types of products. So, I think you need to have a very clear idea first and foremost what it is you're building. Um and at an early stage in product development understand where the regulatory touch points are because there's a lot of evolution in the regulatory landscape today and you might build a product which is amazing and there's demand for it but you might get stuck with regulatory limitations going

forwards when you want to distribute that product. So my message to builders is at a very early stage start thinking about these questions. Start speaking to people who understand what's coming, what's already in place so that you don't find these blockers in the future. Maybe I would say think about the market and go to market strategy as well. So if you are interested in the European market, you would need to look into the regulations as you mentioned. think about uh not only Mika but as Karn mentioned there are regulations that are touching upon the tech itself. Uh there might be exemptions for let's say open source etc. But it's not that um you

know if you don't have any uh any crypto assets or or similar uh is that there's no regulation that applies to you when it comes to offering services or products uh in the European Union. So I think that the EU is quite an attractive interesting markets. It's pretty big as well and uh thinking about that uh in advance in early early stages could um help as well in in the dissemination of the product. Um so I I would say I'm I'm incredibly excited about all things payments. So one thing um that I would look into um is for example stable coin checkout experiences and online commerce. I I think there's a lot of room for

improvement there. Um onchain FX markets I think are a key foundation for whatever crossber payments might might happen in the future. Um and then lastly and this is potentially a little bit connected to regulation is added services for onchain payments or stable coin payments, settlement of tokenized assets like um like um services around chargebacks or fraud and how to how to handle all of that. um requires I think deep knowledge of you know onchain infrastructure but at the same time European and international payments rules and I think there's a lot of stuff to build um there. So um and allow me

one maybe shameless plug. We're obviously super excited about supporting any builders developers in the space. We have you know built a built- on circle developer services platform Discord. So feel free to check that out and um hopefully we can support you as as as well as possible. Yeah. And I I would just add um if you're starting off don't let um like this complex regulatory environment kind of scare you off. I think if you are passionate about a problem that you want to solve, um just get it started and don't let the lawyers sca scare you. Um if you um have a a good solution, um you will figure out a way how to na navigate this. if it's by partnering uh with somebody that has a

license or if it is um by you know going more into the infrastructure route um that is less uh prone to falling under financial services um I think there there will always be aware way and um yeah don't don't let it stop you and uh keep building so thank you all for your thoughts I'm sure we have taken something valuable from it and um yeah if you Have questions, don't hesitate. We are around. Thank you. Thank you.