Europe: the major challenges facing the crypto ecosystem

One of the pleasures of the new year is that it allows us to set the record straight, to forget the hassles and disappointments of the previous year.

From that point of view, the crypto industry is particularly happy to be back in the swing of things: "The last twelve months have been particularly tough, both because of the scandals and the fall in prices that have penalised the whole industry," points out one entrepreneur in the ecosystem, who is nevertheless optimistic: "For the last few weeks we've been feeling an energy that wasn't there before the summer. Things are starting to pick up again."

While we wait for things to really get going again, there is no shortage of challenges facing the 🇪🇺 ecosystem, whether in terms of regulation, institutionalisation or attractiveness... We have taken stock of the major projects for the next 12 months.

👉 1/ Going beyond the promises

Even though almost no one thinks that crypto and blockchain are going to disappear any more, the sector needs to find concrete and... profitable use cases more than ever. "In all periods of hype, the promise of future use cases may be enough, investors are ready to follow. But today, claiming to want to change the world is no longer enough to convince," explains Luc Jodet, partner at XAnge.

For the co-founder of Arianee, who has since left the venture, the use cases are essentially in finance. On the one hand, with the tokenisation of financial assets (read our report) and on the other with the democratisation of crypto investment via traditional vehicles such as ETPs (Exchange Traded Products).

Proof that things are moving forward, in these segments, pure crypto players are seeing some heavyweights from traditional finance arrive, who have realised that there is a good seam. "Major players are going to be looking to gain market share in identified financial use cases," analyses Ivan de Lastours, lead blockchain & crypto at Bpifrance, which has been involved in financing around a hundred crypto projects.

This incursion by traditional players makes the arrival of specific regulation even more important. This is the ambition with the entry into force of the European MiCA (Market in Crypto-Assets) regulations, which will, from this year, be a real challenge for many players.

👉 2/ Getting ready for MiCA... and the rest 😅

The MiCA regulation, which is intended to harmonise crypto rules across the 27 member countries of the European Union, officially came into force on 29 June. But it is not directly applicable. Until 30 December 2024 there is a phase of consultation and gradual publication with the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA).

The aim is to specify and harmonise the terms of application of the text between all member countries 💡.

Once this consultation phase is over, players who already have a registration will be able to benefit from a transition period of up to 18 months, the duration being left to the discretion of each Member State.

Beyond that, any company that has not obtained the famous MiCA approval in one of the countries of the European Union will not be able to offer crypto services there. In practical terms, MiCA is supposed to bring the structure of crypto companies closer to that of financial institutions in the traditional world.

Currently, in France, the scope of registration as a digital asset service provider (DASP) essentially concerns only the fight against money laundering and the financing of terrorism. More than 90 companies have this registration, which has been provisionally upgraded to "reinforced registration" since 30 June, pending the move to European-level accreditation.

"MiCA accreditation is a different kettle of fish. In particular, it provides for the introduction of obligations to prevent internal conflicts of interest, but also burdensome requirements to be put in place for cybersecurity and capital", analyses Frédérick Lacroix, head of financial regulation at the law firm Clifford Chance.

"Many players will not be able to get through the authorisation stage whether from an organisational or financial point of view. There's going to be some sorting out," explains William O'Rorke, co-founder of the law firm ORWL, which supports several dozen French projects.

According to our information, the Autorité des marchés financiers (AMF) has begun unofficially surveying the market to try to map the players likely to go through to authorisation.

👉 3/ A war for talent is looming

Beyond the cost of the authorisation procedure estimated at around €200,000 minimum according to experts interviewed by The Big Whale, crypto projects will above all have to go in search of rare profiles to structure and institutionalise themselves.

"The most sought-after will be those with a fine knowledge of traditional finance. Inevitably, projects will also have to evolve their corporate culture with the arrival of less cryptonative profiles," points out Rija Rameloarison, former head of compliance at Meria and now a regulatory consultant at Milestone Advisory.

"There will inevitably be a sort of war for talent that will start to take hold, if it hasn't already," he huffs.

In recent years, some industry heavyweights have begun to bolster their ranks of regulatory experts. This is particularly the case at Binance with the arrival of Stéphanie Cabossioras, whose mission is to bring the platform into line with MiCA.

More recently, and although not specifically related to MiCA, gaming giant Web 3 Sorare has recruited Jennifer D'Hoir, former AMF and Kraken, to head up its public affairs department.

Crypto players will also face competition from more traditional players who will also be looking for crypto profiles.

"Listed groups are looking for crypto profiles," explains a headhunter who operates in France, the UK and Switzerland. These large groups have the added advantage of deep pockets 💰. "They are not in the same situation as crypto companies, which are a little short of cash because of the economic climate," he adds.

👉 4/ Making your voice heard

The credibility of a sector also depends on the institutionalisation of players capable of defending its interests. This is particularly the case with the Association for the Development of Digital Assets (Adan), the sector's main lobby in France with over 200 members.

Sometimes criticised for not carrying enough weight on certain sensitive issues, Adan has seen two banks join its board, Société générale via its subsidiary SG-Forge as well as Delubac & Cie.

Binance, the world's largest trading platform, has also joined the association via its French subsidiary. Soon, Sorare will become a member according to our information. Until now, gaming giant Web 3 had not considered it essential for its development to join Adan.

"The arrival of this kind of player increases credibility. Clearly, one of the challenges this year will be to continue to professionalise the association", says a member of the Adan board.

Speaking with a single voice to the regulator can also be useful at a time when they are looking for interlocutors. In this respect, France has a head start, as MiCA was largely inspired by the French regulation on digital assets that appeared with the Pacte law in 2019.

"With the entry into force of MiCA, we will move from theory to practice. But there are still a number of points to be clarified. It will be our role to support the players in their compliance and to bring our influence to bear at European level during the consultation phases with the EBA and ESMA", explains Faustine Fleuret.

The coming months are all the more crucial as the European elections are fast approaching 💥.

"This electoral deadline is an opportunity to continue to educate on decentralisation issues and raise the profile of crypto," according to Marina Markezic, co-founder and executive director of The European Crypto Initiative, an association whose members include the Maker decentralised finance protocol and Near Foundation.

"MiCA is just a starting point. Numerous regulatory texts concerning crypto will follow", she warns.

Even more so as NFTs and decentralised finance have been left out of MiCA for the time being but will quickly become subjects of attention again.

"The European authorities have neither categorised nor given a clear definition concerning NFTs. It is therefore theoretically possible that some will fall within the scope of MiCA", warns Faustine Fleuret, whose association also promises to pay close attention to developments in the debates on DeFi, in respect of which regulations are due to emerge post-MiCA.

On the other hand, stablecoins do feature in MiCA and the regulations concerning them will apply from 30 June 2024. However, associations defending the interests of the sector feel that the legislation is far too restrictive in this area.