MiCA Review — Formal Consultation Response

01 — Preliminary Observations

I submitted a response to the Commission's 2020 consultation on an EU framework for markets in crypto-assets (Contribution ID: 03a8d562-ea17-4120-a92a-ef1781e99f06). The positions argued there — on the inadequacy of CSDR for DLT environments, on Liechtenstein's TVTG as the model for EU token property law, on the monetary sovereignty risks of global stablecoins, and on the need for harmonised civil law for token transfers — have since been confirmed by market and regulatory developments. I note them here because they inform the positions in this response and because the Commission has not yet acted on any of them.

The review consultation is asking the right questions in the wrong order. Questions on capital threshold calibration, significance criteria, and RTS proportionality are useful but secondary. The primary questions — what architecture governs token rights, what threshold governs DeFi access, who governs settlement infrastructure — are present in the consultation document but treated as matters of calibration rather than architecture. They are not. They are design decisions that, once made, will be very difficult to unmake. This response addresses them in that order.

02 — The Interest Prohibition

The MiCA interest prohibition on e-money tokens was designed to protect euro monetary sovereignty by preventing yield-bearing euro stablecoins from competing with bank deposits. The mechanism has not worked as intended. Euro stablecoins have lost ground, not gained it. Not one asset-referenced token has been licensed under MiCA in two years of operation. The prohibition did not prevent competition from dollar-denominated stablecoins — it prevented the creation of a euro-denominated alternative that could have competed with them.

Tether's estimated 2024 net profit of approximately $13 billion was drawn almost entirely from interest on US Treasury reserves backing USDT — interest that no token holder receives. The prohibition that was designed to protect the euro created the conditions under which an unlicensed dollar instrument became the dominant on-chain settlement currency in European markets. The causal chain is direct and the Commission should acknowledge it explicitly in the review.

Recommendation: Lift the interest prohibition for euro EMTs in active circulation above a defined threshold, calibrated to the ECB deposit facility rate minus a spread sufficient to prevent direct competition with bank deposits. The threshold mechanism protects the monetary system from systemic risk while removing the structural incentive that currently drives European market participants toward dollar-denominated alternatives. This is the single regulatory change with the greatest leverage on actual market outcomes.

03 — The DeFi Perimeter

The consultation frames the DeFi question as a decentralisation test: how decentralised must a protocol be to fall outside the regulated perimeter? This is the wrong question. Decentralisation is a spectrum, not a binary, and any threshold the Commission sets will be gamed. Protocols will be structured to fall just outside it. The relevant criterion is not decentralisation degree. It is liability capacity.

Every participant in a financial market is subject to liability. DeFi is not an exception. It is an incomplete implementation of the rule. The question is not whether a protocol has a legal person behind it — legal personality is one mechanism for bearing liability, not the only one. A DAO treasury locked in a smart contract, designated as a liability reserve and inaccessible to unilateral governance votes, satisfies the same requirement. On-chain liability reserves are technically straightforward and already exist in several protocol designs.

Recommendation: Define the DeFi threshold as liability capacity, not decentralisation degree. Regulated intermediaries — CASPs, banks, investment firms — may connect clients to DeFi protocols only where addressable assets exist that a court can reach: a legal person, a DAO treasury constituted as a liability reserve, or an on-chain asset pool designated for that purpose. Protocols without such assets remain accessible to sophisticated investors acting on their own account. They do not belong in the regulated perimeter — and do not need to be certified, audited, or licensed. Liability capacity is enforcement. Certification of code is theatre.

04 — Token Property Law: The TVTG as the Model

The consultation presents options for EU-level token property law and asks respondents to rank them. The correct answer is not difficult to identify, and the proof of concept already exists in EU law — in an EEA member state that has been operating it since 2020.

Liechtenstein's Token and Trusted Technology Service Providers Act (TVTG) and § 81a SchlT PGR together define a token as a legal container for rights and specify the legal consequences of ledger entries without harmonising underlying property law. Any right may be attached to a token. Registration of a token holder in the applicable ledger is constitutive — it creates the right, it does not merely evidence it. A possessionless pledge over a tokenised right is available by statute — the Faustpfandprinzip is expressly disapplied. The Physical Validator role addresses real-world asset integrity where the token represents rights in physical objects. The framework has been operating continuously for six years. It has not produced the catastrophic outcomes that opponents of harmonised token property law predicted. (TVTG, LGBl. 2019 Nr. 301; BuA Nr. 54/2019)

MiCAR deliberately left civil law to member states. The result is fragmentation: a token issued in Liechtenstein under the TVTG has well-defined property law consequences; the same economic instrument issued in France has different consequences; issued in Germany, different again. Institutional investors will not scale cross-border tokenised asset markets on legal uncertainty. They never have.

Recommendation: Adopt the functional approach — Model 3 as the framework architecture, with erga omnes effect across all member states — modelled on the TVTG. Define a token as a digital object capable of representing any right. Specify that attachment of a right to a token produces the same legal consequences as any other legally recognised method of creating, transferring, or encumbering that right. Specify that registration in the applicable ledger is constitutive. Include the Physical Validator role for tokens representing rights in physical objects. Extend MiCA passporting to EEA non-EU members whose token property law frameworks meet EU standards in substance — the Liechtenstein corridor is the obvious starting point. The Commission has a proof of concept. It should use it.

One specific gap in every existing EU framework — MiCA, the DLT Pilot Regime, and Germany's eWpG — requires explicit attention in MiDA: the irrecoverable token position.

Once an asset is tokenised and tokens distributed, a single irrecoverable position — a lost private key, a deceased holder without succession, a wallet permanently beyond reach — creates an obstacle to consolidated ownership that conventional corporate and securities law cannot solve. A minority shareholder blocking a squeezeout can be found and compelled through court process. A token holder who has lost their key cannot. The token is visible on-chain. Nobody can move it. The consequence applies across all token types: tokenised equity where an acquirer needs 100% ownership, a bond series blocked from retirement by one irrecoverable position, a unique asset — a work of art, a property title — that cannot be reconsolidated once fractionalised. Tokenisation, without a legal remedy for irrecoverable positions, creates permanent fractured ownership as a structural by-product of every distribution.

Liechtenstein addressed this directly in Art. 10 TVTG — the Kraftloserklärung: where a private key is lost or a token is otherwise dysfunctional, the person who held the right of disposal at the time of loss may apply to the court in non-contentious proceedings for the token to be declared invalid. Once declared invalid, the applicant may assert their right without the token or demand generation of a replacement. (TVTG, Art. 10, LGBl. 2019 Nr. 301)

Recommendation: MiDA should incorporate an EU-level Kraftloserklärung equivalent applicable to all tokenised instruments, with an explicit extension to the squeezeout context. Where a majority acquirer of a tokenised instrument has reached a defined ownership threshold and faces irrecoverable minority token positions, the acquirer should be able to apply to the competent court for those positions to be declared invalid. The court declares them kraftlos. The rights represented are transferred to the acquirer at a fair price — determined by an independent valuer — held in escrow for any claimant who subsequently proves entitlement within a defined limitation period. This mechanism applies regardless of token type: equity tokens, asset tokens, bond tokens. It closes the gap that every existing EU framework has left open and that will materialise as a live legal crisis the moment the first tokenised squeezeout transaction is attempted.

05 — A Framework Architecture for MiDA

The following five-layer framework is proposed as the architecture for MiDA. Each layer has a different amendment cadence. The civil law foundation changes rarely — it is written to be technology-neutral and should remain valid as technology evolves beneath it. The technical standards layer updates continuously — it follows technology rather than leading it. The delegated acts layer is the adaptive mechanism — it allows the Commission to respond to market developments without requiring Parliament to reconvene.

Layer 1 — Civil Law Foundation (Primary law, amend rarely)

Define once, in primary law: a token is a digital object capable of representing any right. Registration of a token holder in the applicable ledger is constitutive. The lex situs of a token follows the jurisdiction of the licensed custodian or registry operator. Possession transfer is not required for pledge — registration substitutes. Where a token represents rights in a physical object, a Physical Validator certifies correspondence between on-chain representation and physical reality. No technology is named. Ethereum, its successor, and technologies not yet invented all qualify — the law attaches to the right, not the ledger.

Layer 2 — Service Obligation Layer (Primary law, amend rarely)

Five service categories with defined obligations regardless of what the token underneath represents: custody, issuance, trading, settlement, and advice. The obligation flows from the service relationship, not the asset classification. This dissolves the MiCA/MiFID boundary problem — the boundary still exists, but it determines which additional sectoral rules apply, not whether service obligations apply at all.

DeFi: regulated service providers may connect clients to any protocol where addressable assets exist that a court can reach. No addressable assets means no access for intermediaries. Sophisticated investors may access such protocols on their own account.

Infrastructure: any entity providing settlement services must connect to Eurosystem settlement infrastructure where available, publish open APIs on non-discriminatory terms, and not restrict access to competing platforms.

Layer 3 — Delegated Acts Layer (Commission, update by delegated regulation)

Within the mandate Parliament defines: eligibility criteria for each token type, capital thresholds calibrated to risk, disclosure formats, collateral eligibility, equivalence determinations for third-country frameworks. The Commission acts without returning to Parliament. When a new token category emerges, the Commission issues an eligibility determination. When thresholds need recalibration, the Commission amends. The primary law does not change. The adaptive layer does.

Layer 4 — Technical Standards Layer (ESAs, update annually)

ESMA, EBA, and EIOPA publish binding technical standards on: smart contract audit requirements, key management and custody architecture, interoperability specifications — token identification under ISO 24165 DTI, settlement messaging under ISO 20022, API specifications for cross-platform settlement — and Physical Validator accreditation. Technical standards are reviewed annually. They follow technology. The legal consequence of a token registration stays constant under Layer 1. The technical requirements evolve continuously under Layer 4. The two layers are deliberately decoupled.

Layer 5 — Safe Harbour Sandbox (Administrative, notification-based)

Any entity operating a novel token model that does not fit within Layers 2 and 3 may notify ESMA for safe harbour status. Regulatory obligations are suspended for defined token types and volume thresholds, in exchange for direct supervisory dialogue and structured data sharing. Automatic graduation to the full framework on exceeding defined thresholds. No passport — domestic only. Annual ESMA review with mandatory assessment of whether new delegated act categories are warranted. The sandbox is not a permanent home. It is an observation mechanism — generating evidence before rules are written rather than after. The DLT Pilot Regime is this concept in embryonic form; the difference is that exits are automatic and rule-writing is mandatory when thresholds are met.

Layer 1 has been operating in Liechtenstein since 2020. Layer 5 is the DLT Pilot Regime with a mandatory exit mechanism. Neither is novel. The question is whether the EU will assemble them into a coherent architecture.

06 — Infrastructure Governance

The consultation does not ask who should govern the settlement and classification layer of European digital asset markets. That silence is not neutral. It is a default in favour of whoever moves first with sufficient scale to become the standard.

Deutsche Börse's D7 DLT platform is the current candidate. It is private, shareholder-owned, partially hosted on US hyperscaler cloud, and live since late 2025. It participated in the ECB's 2024 DLT trials — which confers legitimacy and client confidence. If MiDA does not address infrastructure governance, D7 becomes the standard by default. Not because it is designed for Europe's interests, but because the market will not wait for a policy debate to conclude.

The ECB's Appia programme — blueprint due 2028 — is the sovereign alternative. It is the right ambition. It will not outbuild Deutsche Börse on a product timeline. It does not need to. GSM did not compete with Nokia. It set the standard Nokia had to meet. Appia's value is as the reference implementation: central bank money settlement, collateral eligibility, MiDA passporting, open interoperability. Private platforms must meet the standard to access EU regulatory privileges. The market builds the product. The sovereign layer sets the terms.

Recommendation: Write mandatory interoperability into MiDA as primary law. Any entity providing settlement services in EU markets must: connect to Eurosystem settlement infrastructure where available; publish open APIs on non-discriminatory terms; not restrict access to competing platforms. This does not require the ECB to build competing infrastructure. It requires that nobody captures the infrastructure before the rules are written. Primary law is structurally harder to quietly shelve than a 2028 blueprint.

07 — Integration as Design Condition

The Capital Markets Union has been on the EU agenda since 2015. The single market for capital remains fragmented along national lines. MiCA is already reproducing the pattern — 170 CASPs across 18 member states, each authorised under subtly different NCA interpretations of the same regulation. MiDA, designed as a conventional regulatory framework on top of privately fragmented infrastructure, will do the same.

MiDA's one structural advantage over every previous EU capital markets initiative is timing. The digital asset market is not yet nationally entrenched. There are no thirty-two digital asset CSDs with thirty-two national client bases. The window to design integration in from the start is open. It will not stay open.

Recommendation: Adopt integration incentives that make fragmentation more expensive than integration from day one: automatic passporting for instruments issued on the EU sovereign DLT layer; EIB first-loss support for cross-border retail products distributed through common infrastructure; tax neutrality for cross-border tokenised instrument transactions; a genuine pan-European sandbox with primary law effect rather than national sandboxes that face the full fragmentation problem the moment they scale. The CMU failed because integration was attempted after fragmentation was entrenched. MiDA is the last instrument that can prevent the same outcome in digital asset markets.

08 — On the 2020 Positions

Six positions argued in the 2020 consultation have since been confirmed by events. Liechtenstein's TVTG is the model for EU token property law — the EU has not adopted it. Global stablecoins erode monetary policy efficacy through diversification effects — USDT at $130 billion in circulation confirms the concern. CSDR requires a complete overhaul for DLT environments — the DLT Pilot Regime arrived instead, leaving the 32-CSD architecture intact. Harmonisation of national civil laws governing token transfers is unavoidable — still unresolved. DLT cash-leg settlement requires a dedicated stablecoin or digital euro — Pontes arrives in Q3 2026, six years later. Without international cooperation, issuers concentrate in the most favourable jurisdiction — Liechtenstein, Switzerland, UAE, and Singapore attracted what the EU could not retain.

None of these observations required unusual foresight in 2020. They were direct extrapolations from the structure of the problem. The Commission has had six years to act on them. This response is submitted in the expectation that the next six will not repeat the pattern.