As the European regulatory landscape for crypto-assets evolves, the Markets in Crypto-Assets Regulation (MiCA) introduces significant changes that could impact staking agreements and related services. While staking itself is not explicitly defined within MiCA, any entity facilitating staking services may fall under its purview if they engage in regulated activities such as custody or trading. This article explores how MiCA’s provisions apply to crypto-asset service providers (CASP) and what staking businesses should consider in order to avoid full compliance obligations while ensuring robust legal frameworks.
Obligations Imposed on CASPs Under MiCA
MiCA mandates strict operational and risk management standards for CASPs, particularly those providing custody or trading services. Key obligations include, among others:
- Authorization Requirement: CASPs must obtain authorization from relevant authorities if their activities involve custody of user assets or other regulated services.
- Disclosure Requirements: Providers must clearly disclose all risks, fees, and terms associated with their services. This includes policies on pricing, costs, and fees.
- AML/CFT Controls: CASPs must implement anti-money laundering (AML) and counter-terrorism financing (CFT) measures, including customer due diligence (CDD) processes.
- Segregation of Assets: Providers are required to segregate client assets from their own, ensuring users’ assets remain protected even in cases of insolvency.
- Operational Resilience: Compliance with the Digital Operational Resilience Act (DORA) ensures providers have robust systems in place to mitigate cybersecurity risks and operational disruptions.
EBA’s Perspective on Staking Risks
The EBA report highlights several critical areas where staking agreements pose risks, emphasizing the need for clear regulatory boundaries:
- Information Asymmetry: Many staking agreements fail to provide sufficient information about conditions such as fees, interest rates, collateral requirements, and rights/liabilities in case of disputes or insolvency.
- Penalties and Slashing: The EBA notes that some centralized platforms offer contractual protections against slashing but stresses the importance of transparency regarding scenarios where penalties might occur.
- Market Risks: Liquid staking tokens (LSTs) introduce additional complexity, as their value can deviate from the underlying staked asset. Providers must communicate this volatility clearly to users.
- AML/CFT Gaps: DeFi staking protocols often lack adequate AML/CFT controls, increasing the risk of illicit activities. Centralized providers, however, can bridge this gap through proper identification and verification procedures.
Strategies to Avoid Full MiCA Compliance
To minimize the regulatory burden imposed by MiCA, businesses offering staking services can adopt strategies that reduce their classification as CASPs:
- Non-Custodial Models: By adopting non-custodial staking solutions, providers avoid taking possession of users’ private keys, thereby sidestepping many custody-related obligations. For example, self-custodial wallets allow users to retain control over their assets while participating in staking.
- Decentralized Protocols: Offering access to fully decentralized staking protocols without acting as intermediaries can help providers stay outside MiCA’s scope. However, this approach requires careful consideration of liability issues and user education.
- Limited Services: Restricting offerings to advisory or educational roles rather than directly managing or facilitating staking can also limit regulatory exposure. For instance, tools that aggregate yield opportunities across protocols without executing transactions on behalf of users may not require CASP authorization.
Key Contractual Considerations for Businesses
Regardless of whether a provider seeks to avoid full MiCA compliance, incorporating specific clauses into staking agreements is essential for protecting both parties and maintaining trust:
- Clear Definitions: Contracts should define key terms like «staking,» «liquid staking,» «slashing,» and «unbonding periods» to ensure mutual understanding.
- Risk Disclosures: Providers must explicitly outline risks such as market volatility, slashing, and liquidity constraints.
- Revenue & Benefit Margins: Clearly define the economic model, including service fees, validator commission structures, and any additional costs deducted from staking rewards. Transparency in margins ensures predictable revenue streams and mitigates disputes with partners or clients.
- Operational Costs & Profitability: Staking agreements should outline the cost structure, including infrastructure expenses, validator fees, and compliance-related costs (e.g., AML/KYC processes). Understanding these variables helps businesses maintain a sustainable profit margin.
- Liability & Risk Allocation: Specify how risks (e.g., slashing penalties, smart contract failures, regulatory fines) are distributed between the business and stakeholders. Limiting exposure to external factors is crucial for financial stability.
- Exit & Liquidity Management: Clearly define redemption mechanisms, unstaking periods, and potential liquidity constraints. If the business model relies on liquid staking, ensure there’s a contingency plan for market fluctuations affecting token pegs.
- Jurisdiction & Regulatory Flexibility: Given the evolving regulatory landscape, agreements should allow for adaptation. Consider clauses that enable renegotiation or restructuring in response to new compliance requirements.
- Institutional & B2B Relationships: If working with institutional clients or B2B partners, define service-level agreements (SLAs), revenue-sharing models, and exclusivity clauses to secure long-term business stability.
- AML/CFT Provisions: Even if non-custodial, contracts should encourage users to comply with local AML/CFT regulations to promote responsible participation.
Conclusion:
For businesses operating in the staking space, understanding MiCA’s implications is crucial. While staking itself is not explicitly regulated, entities providing custodial or trading-related services must adhere to stringent CASP obligations. To avoid these burdens, providers can explore non-custodial or purely decentralized models. At the same time, well-drafted staking agreements that prioritize transparency and consumer protection can enhance credibility and attract more participants.
*Disclaimer: This article provides general guidance and does not constitute legal advice. Always consult with qualified professionals before making any regulatory decisions like the team at Cysae Legal. We make compliance less of a headache and more of a strategy.
