What are Utility tokens according to MiCA?
The MiCA covers three types of crypto assets. One of the three types being crypto assets that are not asset-linked tokens or electronic money tokens (other tokens, including utility tokens).
Utility tokens are defined as crypto assets that are issued to finance the development of a crypto project and can be used to purchase goods or services offered by the token issuer. They are not a means of exchange or store of value like e-money or ART tokens.
This category includes tokens used for a broad range of purposes, including utility within specific platforms or ecosystems, representing ownership of assets (security tokens), granting governance rights in decentralized organizations, or representing unique digital items (non-fungible tokens).
Unlike ARTs, these crypto assets are not required to maintain a stable value relative to any external reference. Their value can fluctuate based on market demand, utility, and other factors.
The “issuer-specific goods and services” nature of utility tokens is also a crucial aspect of their function. This means that utility tokens are only accepted as a form of payment or to unlock features within the specific platform, ecosystem, or network created or managed by the token issuer. This creates a closed-loop ecosystem where the utility token circulates and facilitates transactions only within the issuer’s designated platform.
If you are issuing Utility tokens that provide access to a product or service that already exists or is functioning, they are not subject to the MiCA’s requirements for public offerings of crypto assets other than asset-linked tokens or electronic money tokens. The token must provide access to a product or service that is already on the market or in active use, and not to a future promise or development.
However, this exception does not apply if the offeror or another person acting on behalf of the offeror communicates in any form its intention to seek admission to trading. In other words, if you and/or a third party trade your utility token, you must comply with the MiCA rules.
The requirements under the MiCA for crypto assets that are not asset-linked tokens or electronic money tokens (Utility tokens)
The requirements under the MiCA for crypto assets that are not asset-linked tokens or electronic money tokens (Utility tokens), which you are required to comply with from 29 June 2024, are set out in Article 14(1) of the MiCA:
- act honestly, fairly and professionally;
- communicate with owners and potential owners of crypto assets in an honest, transparent and non-misleading manner;
- identify, prevent, manage and disclose any conflicts of interest that may arise;
- maintain all their security access systems and protocols in accordance with appropriate Union standards.
The requirements stipulated by the MiCA for crypto assets that are not asset-linked tokens or electronic money tokens (Utility tokens), which you will need to comply with from 30 December 2024:
- be a legal entity;
- draw up a crypto asset white paper in respect of this crypto asset;
- notify about the crypto asset white paper;
- publish the crypto asset white paper;
- develop marketing messages, if any, in relation to this crypto asset;
- publish marketing messages, if any, in relation to this crypto asset.
It is also advisable to prepare a public offer agreement that will clearly, honestly, transparently explain to customers their rights, obligations, the nature of the token, the nature of the obligations of the token issuer, as well as the rules for refunding funds and the token within 14 days, etc.
However, please note the following:
It is not necessary to draw up a white paper if the crypto asset is already admitted to trading on another trading platform for crypto assets in the Union.
If a crypto asset is admitted to trading on the initiative of a trading platform operator and no white paper is published in accordance with the MiCA, the operator of that trading platform must comply with the requirements set out in the MiCA:
- draw up a white paper for that crypto asset;
- notify about the white paper;
- publish the white paper;
- develop marketing communications, if any, in relation to that crypto asset;
- publish any marketing messages in relation to this crypto asset;
- meet the requirements for persons applying for admission to trading:
- act honestly, fairly and professionally;
- communicate with owners and potential owners of crypto assets in an honest, clear and non-misleading manner;
- identify, prevent, manage and disclose any conflicts of interest that may arise;
- maintain all their secure access systems and protocols in accordance with the relevant Union standards.
A person wishing to access trading in a crypto asset other than an asset-linked token or an electronic money token and the relevant operator of that trading platform may agree in writing that it is the relevant operator of the trading platform that is obliged to comply with all or part of the requirements set out above. The agreement should clearly state that the person applying for admission to trading is obliged to provide the trading platform operator with all necessary information to enable that operator to satisfy the requirements set out above, if applicable.
So, what are the requirements for a white paper and marketing messages under the MiCA?
The white paper must contain all of the following information:
- information about the offeror or the person seeking admission to trading;
- information about the issuer, if different from the offeror or person seeking admission to trading;
- information about the operator of the trading platform in cases where it draws up the crypto-asset white paper;
- information about the crypto-asset project;
- information about the offer to the public of the crypto-asset or its admission to trading;
- information about the crypto-asset;
- information on the rights and obligations attached to the crypto-asset;
- information on the underlying technology;
- information on the risks;
- information on the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the crypto-asset.
The crypto asset white paper should be drawn up in the official language of the host Member State or in a language commonly used in international finance. If the crypto assets are also offered in a Member State other than the home Member State, the technical information on the crypto assets must also be drafted in the official language of the host Member State or a language commonly used in international finance.
All information must be fair, clear and not misleading. The crypto asset white paper should not contain material omissions and should be presented in a concise and understandable manner.
The Crypto Asset White Paper must contain on the first page a clear and conspicuous statement, the text of which is set out in Article 6(3) MiCA.
Once the white paper has been drawn up, you must notify the competent authority of your Member State.
This is the message shall be accompanied by an explanation of why the crypto-asset described in the crypto-asset white paper should not be considered to be:
- a crypto-asset excluded from the scope of this Regulation pursuant to Article 2(4) of the MiCA;
- an e-money token; or
- an asset-referenced token.
Marketing communications must meet all the following requirements:
- the marketing communications are clearly identifiable as such;
- the information in the marketing communications is fair, clear and not misleading;
- the information in the marketing communications is consistent with the information in the crypto-asset white paper, where such crypto-asset white paper is required;
- the marketing communications clearly state that a crypto-asset white paper has been published and clearly indicate the address of the website of the offeror, the person seeking admission to trading, or the operator of the trading platform for the crypto-asset concerned, as well as a telephone number and an email address to contact that person;
- marketing communications contain a clear and prominent statement approved by MiCA.
Marketing communications shall, upon request, be notified to the competent authority of the home Member State and to the competent authority of the host Member State, when addressing prospective holders of crypto-assets other than asset-referenced tokens or e-money tokens in those Member States.
No marketing communications shall be disseminated prior to the publication of the crypto-asset white paper.
You must publish the crypto asset white paper and, if applicable, the marketing communications on a publicly accessible website within a reasonable time and in any event before the date on which the crypto assets are offered to the public or admitted to trading. They must remain available on the website for as long as the crypto assets are in the public domain.
You don’t need to publish a white paper and marketing communications if:
- an offer to fewer than 150 natural or legal persons per Member State where such persons are acting on their own account;
- over a period of 12 months, starting with the beginning of the offer, the total consideration of an offer to the public of a crypto asset in the Union does not exceed EUR 1 000 000, or the equivalent amount in another official currency or in crypto assets;
- an offer of a crypto asset addressed solely to qualified investors where the crypto asset can only be held by such qualified investors.
There is no need to comply with the MiCA’s requirements for public offerings of crypto assets if any of the following conditions apply:
- the crypto asset is offered for free;
- the crypto asset is automatically created as a reward for the maintenance of the distributed ledger or the validation of transactions;
- the offer concerns a utility token providing access to a good or service that exists or is in operation;
- the holder of the crypto asset has the right to use it only in exchange for goods and services in a limited network of merchants with contractual arrangements with the offeror.
These exemptions shall not apply where the offeror, or another person acting on the offeror’s behalf, makes known in any communication its intention to seek admission to trading of a crypto asset other than an asset-referenced token or e-money token.
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The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.
