1/ Yesterday was a prime example of why crypto Twitter (and often crypto media) should not be trusted when it comes to crypto policy. Let's debunk claims that the EU is banning anonymous crypto transactions or self-custodial wallets.

Here is what’s actually in the EU Anti Money Laundering Regulation (AMLR) and what in means for crypto in the EU 🧵


2/ First things first: The AMLR is not a crypto regulation.

It’s a broad AML/CFT framework that applies to institutions, so called “obliged entities” (OEs). All financial institutions, including CASPs (crypto-asset service providers), are OEs. But also non-financial institutions like football clubs or gambling services that might be prone to AML/CFT risk will be treated as OEs under the AMLR.

The EU MiCA regulation is without any doubt the most comprehensive, already adopted crypto framework in the world.

Nonetheless, there are assets & activities that aren't covered by its broad scope. A thread about who/what will not need regulatory approval under MiCA 🧵

1/12 • Utility tokens only used and usable in a certain limited network
• Crypto-asset offerings to <150 people per EU member state or only to qualified investors. Offerings <1M EUR in a 12months period
• Digital assets that cannot be transferred

2/12

MiCA, the landmark EU crypto regulation, officially passed the plenary of the EU Parliament 🇪🇺
-517 MEPs voted in favor
-38 against
-18 abstentions

Next steps
-final formal vote in the Council of the EU (EU member states) on May 16
-MiCA publication in the Official journal of… twitter.com/i/web/status/1… As promised, here is an in-depth overview of MiCA's rules and implications: paddihansen.substack.com/p/the-eus-mica…

1/16 Stablecoins are undeniably crypto's killer use case atm and going to mainstream faster than any other application.

Don't take my word for it, look at the data 🧵 2/16 Total value settled with stablecoins is rising in the bear market, reaching over $7 trillion in 2022.

For comparison, Mastercard processed $2.2 trillion in value in 2022.

1/ Wonder how a central bank issued digital euro could look like?

The ECB has published its second progress report.

It sheds more light on the role of intermediaries, the settlement model, funding/defunding model, distribution model & next steps.

Some highlights in the 🧵 2/ Role of intermediaries
• Supervised intermediaries would be the direct counterparts for individuals, merchants and businesses.
• They would be responsible for transaction management tasks, incl. initiation, authentication, validation & post-settlement activities.

1/ The BIS has published a study on retail crypto trading (2015-22) incl. some remarkable charts.

TL/DR: When the price of #Bitcoin rises, more people download & actively use crypto exchange apps.

73-81% of retail investors have likely lost money on their initial investment. 👇 2/ Key findings:

A rise in BTC price is associated with a significant increase in new users. The price explains the lion’s share of the variation of new users, other variables (policy uncertainty etc.) are less important, contradicting explanations based on BTC as a safe haven.

1/ Compared to tools like tornado cash, usage & growth of privacy coins like Monero (#29 on CG) or Zcash (#64 on CG) have stagnated in recent years.

And from a regulatory perspective, the headwinds are getting stronger. The EU is giving us a glimpse of what to expect 🧵 2/ PS: For the main reasons why privacy coins haven't taken off, I recommend this article from @hosseeb from earlier this year.
coindesk.com/layer2/privacy…

1/ In light of the recent Tornado Cash situation, I feel like regulatory risk (esp. AML) for the #Bitcoin lightning network is generally under-discussed.

I will have a closer look in the next weeks, but here are a few initial thoughts 👇 2/ Custodial lightning services (strike, cash app etc.) will have to comply with the FATF travel rule and its (e.g. EU) implementation.

This will be hard/tricky to implement for many professional lightning service providers (nodes).

https://twitter.com/paddi_hansen/status/1510669624748253189?s=20&t=C0xXeJX-bz4Cqh51oPjTLA

1/8 The UN published policy recommendations for developing countries on how to curb the "spread of the risks of cryptocurrencies & stablecoins".

The list includes taxes on trading, banning institutions from holding, prohibiting social media ads & more.
unctad.org/system/files/o… 2/8 Recommendation 1:

Making the use of crypto less attractive through strict regulation, taxes, banning institutions from offerings services or holding crypto for clients, and regulating DeFi's more centralized entry points.

1/ EU citizens are not impacted by the US sanctions on Tornado Cash, BUT

mixers will be seen as high-risk transactions under the upcoming EU regulation.

Connected assets will be hard to off-ramp, need justification, and might be reported to financial supervisors. 2/ What does this mean?

If you sent assets through mixers like Tornado Cash and need to interact with regulated players (e.g. exchanges), they will need to ask you to justify the use of these mixers, before taking a decision to reject (or not) the transfer.

1/ Ideologically, I believe that financial privacy tools like Tornado Cash should be protected at all costs.

But pragmatically, I fear that focusing the narrative on protecting anonymous transfers is fighting a losing regulatory battle detrimental to the broader crypto AML rules 2/ The industry has been trying (at least partially successfully) for years to convince regulators around the world that the transparency of blockchains makes it easier, not harder, to detect, disrupt, and deter illicit activity.

1/ End of June, the EU reached political agreements on MiCA & TFR, the most comprehensive crypto regulations to date in a major jurisdiction.

Since then many are wondering where they can find the final texts & when they will come into force.

An update thread on MiCA & TFR 👇 2/ First, here are my 2 summary threads of the political deals/decisions made incl. my main takes.

1. MiCA - the comprehensive framework for crypto-asset issuance (incl. stablecoins) & crypto-asset service providers (e.g. custody, brokerage, trading etc.)

https://twitter.com/paddi_hansen/status/1542813914605297664?s=20&t=ePPXqr3p2JR-ipKPIsGw0g

The ECB has published 3 new research articles on

• Climate risk of crypto
• DeFi
• Stablecoins

They give a good overview of how the ECB thinks about these issues and contain some remarkable quotes and graphs. A few examples 👇
ecb.europa.eu/pub/financial-… On climate:

"Public authorities have the choice of incentivising the crypto version of the electric vehicle (PoS and its various blockchain consensus mechanisms) or to restrict or ban the crypto version of the fossil fuel car (PoW blockchain consensus mechanisms)."

1/ Yesterday, after 2-3 years of consultation, discussion, amendments & negotiation, EU institutions reached an agreement on MiCA.

MiCA is probably the most important piece of crypto regulation to date.

Here is a brief overview of some key decisions 👇
europarl.europa.eu/news/en/press-… 2/ MiCA regulates issuers & service providers (exchanges etc.) of crypto-assets. It also introduces rules against market abuse.

Its main goals
• harmonize the EU market
• create regulatory certainty
• improve consumer protection/prevent fraud
• strengthen financial stability

Habemus MiCA!

EU institutions have reached an agreement on the most comprehensive crypto regulation in the world. After the TFR yesterday, it's the second EU deal in 24h.

I will share more details on the decision tomorrow at the latest. Here is a recap of the main aspects that were still being negotiated:

https://twitter.com/paddi_hansen/status/1540640277555052545?s=20&t=EFk-Is-4g-qknmJyie-3aA

1/ The EU has reached a deal on the TFR (AML rules).

Yesterday evening, policymakers agreed on the first of the two key EU crypto regulations being currently finalized.

It's not looking great, but could have ended up even worse. A quick overview👇
europarl.europa.eu/news/en/press-… 2/ Recap: Most aspects were already agreed upon prior to yesterday, final negotiations were mainly focused on how to handle transfers from CASPs to/from self-custody wallets.

https://twitter.com/paddi_hansen/status/1540640277555052545?s=20&t=JBRaiLsezSfwQSCay_ghwQ

1/ The two most important EU crypto regulations to date, MiCA ("PoW-ban") & TFR ("unhosted wallets"), are about to be finalized by the end of June.

They have huge implications for the crypto market in the EU and beyond.

Here is a quick update thread on both regulations 👇 2/ First, the landmark MiCA bill.

The last & concluding political trilogue meeting between the three main EU institutions (Council/Parliament/Commission) will be next Thursday on June 30.

Almost all big issues have been agreed upon. A few open topics remain:

1/9 The new ECB review "The international role of the euro" is out.

The Euro remains the 2. most widely used currency after the USD, with a share of 19% across various indicators.

For the first time, the review also looks at Euro stablecoin usage 👇
ecb.europa.eu/press/pr/date/… 2/9 The review acknowledges that

• USD stablecoins dominate
• Stablecoins could support the currency's international profile
• Euro stablecoins are comparatively small
• Stablecoins could gain systemic importance

1/6 Good news wrt the TFR (AML rule) in the EU 👏

In a letter from State Secretary @florian_toncar to MP @f_schaeffler the German Ministry of Finance opposes

• the comprehensive verification of "unhosted" wallets
• suspicion-independent transaction reports to AML authorities @florian_toncar @f_schaeffler 2/6 According to the letter, these demands from the EU Parliament are difficult to reconcile with a risk-based approach to AML/CFT and go beyond the FATF requirements.

Therefore, the Council of the EU (member states) is negotiating against it in the current trilogue negotations.

1/ Stablecoin issuers face a dilemma with regards to EU stablecoin regulation (MiCA).

Either they get authorized and risk seeing their issuance curbed or yield services on top of their stablecoin prohibited, or they don't and won't be admitted on EU trading platforms anymore.👇 2/ MiCA was drafted as a direct reaction to the former Libra stablecoin project.

It sets 2 stablecoin categories
1. E-Money-Tokens (EMTs)-refer to one single Fiat currency
2. Asset-Referenced-Tokens (ARTs)-refer to >1 Fiat currency, 1 or more crypto assets, 1 or more commodities

1/ In case you missed it, the EU commission wrote a chapter on DeFi in its "Financial stability & integration review 2022"

It shows that the Commission staff is well aware of how DeFi works, incl. single protocols.

A few selected quotes wrt policy 👇
ec.europa.eu/info/sites/def… 2/ "An open question is whether the DeFi ecosystem could substitute (..) the traditional financial system.

Although DeFi seems to replicate many of the functionalities (..), its contribution to the financing of real economic activity is so far minimal, if not fully absent."