Best crypto threads of the day – September 21st 

Update on the EU MiCA regulation

After the political agreement end of June, the technical talks to finalize the text have now been concluded.

Next steps:
-vetting of text by lawyers
-final votes (pure formality)
-entry into force after transition period

Details in the https://t.co/v4UxpVsqDI

— Patrick Hansen (@paddi_hansen) September 21, 2022

Reminder: This piece of regulation, in all likelihood, has implications far beyond the EU:https://t.co/VamJfWlj91

— Patrick Hansen (@paddi_hansen) September 21, 2022

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 https://t.co/4CtzMkZhb0

— Patrick Hansen (@paddi_hansen) July 1, 2022

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

— Patrick Hansen (@paddi_hansen) July 1, 2022

3/ Most aspects were already agreed upon before yesterday's final negotiation (see thread below), but a few open topics wrt NFTs, DeFi, Stablecoins, AML, supervision etc. remained.https://t.co/J1XZta89wj

— Patrick Hansen (@paddi_hansen) July 1, 2022

4/ There is not 100% clarity on all the aspects yet, so please take these points with a grain of salt:

• DeFi
Truly decentralized DeFi protocols are not in MiCA's scope. The EU commission will publish a report/potential regulation on DeFi in 2023.

— Patrick Hansen (@paddi_hansen) July 1, 2022

5/ • Environmental impact
The POW-ban is off the table, but CASPs will have to disclose information (specified by EMSA) on the sustainability of the crypto-assets (& their consensus) they provide services for. Plus, a review clause could introduce additional rules in the future.

— Patrick Hansen (@paddi_hansen) July 1, 2022

6/ • NFTs
NFTs will be exempted from MiCA's scope. Fractions of NFTs aren't.

However, national supervisors could re-classify NFTs if their features or use cases would allow them to be requalified as a crypto-asset or a financial instrument.

— Patrick Hansen (@paddi_hansen) July 1, 2022

8/ • Stablecoins
-issuance caps for ARTs and non-Euro EMTs used on large scale for payments (e.g. €200m volume per day).
-EBA will supervise significant stablecoins
-issuers need an EU presence
-reserve has to be protected in case of insolvency
-no exemptions for algo stables

— Patrick Hansen (@paddi_hansen) July 1, 2022

9/ • supervision
-ESMA/EBA have intervention powers to restrict CASPs/token issuance
-CASPs will be supervised by national authorities, but ESMA has coordination role for CASPs with >15m customers
-ESMA will establish a register of unauthorized CASPs operating in the EU

— Patrick Hansen (@paddi_hansen) July 1, 2022

10/ • AML
Most AML rules are dealt with in the TFR (deal 2 days ago) or in the currently discussed AMLD.

MiCA requires CASPs to introduce general AML safeguards and have a substantive presence and management in the EU.https://t.co/dCwzxWIyDI

— Patrick Hansen (@paddi_hansen) July 1, 2022

11/ • Liability

CASPs are liable for damages or losses caused because of hacks or operational failures.

Client assets have to be segregated/protected in case of insolvency.

— Patrick Hansen (@paddi_hansen) July 1, 2022

12/ For assets without issuer (e.g. BTC), exchanges have to provide a white paper/information if they want to list them.

They could end up being liable for the information they provide there ("best effort").

— Patrick Hansen (@paddi_hansen) July 1, 2022

13/ • Implementation timeline

General application of MiCA 18 months after entry into force (probably in a couple of months), but only 12 months for stablecoins issuers.

— Patrick Hansen (@paddi_hansen) July 1, 2022

14/ These are the key points for now.

Imo, MiCA is not perfect, but could prove to be a net positive development for the EU crypto market.

Some aspects with regards to liabilities, stablecoins & CASPs require more clarification & work in the upcoming technical specifications.

— Patrick Hansen (@paddi_hansen) July 1, 2022

15/ The political agreements will now have to translated into technical spefications, primarly by the supervisory authorities EBA & ESMA.

Plus, there are a number review clauses & reports that will lead to us continuing to hear from MiCA over the next years without any doubt.

— Patrick Hansen (@paddi_hansen) July 1, 2022

16/ It is not clear yet when the final text will be public. It could take another while.

In the meantime, I hope this helps. Feel free to share https://t.co/MTSSWBkLYH

— Patrick Hansen (@paddi_hansen) July 1, 2022

The crypto vc market is currently thawing after a 4 month freeze, but with major dislocations

'Bear market chasm' = gap between 2021 and 2022 vals

Bar is *much* higher for Series A's

Very few 2021 seed companies will survive

1/ Some jumbled thoughts

— Regan Bozman (@reganbozman) September 20, 2022

2/ Valuations have been meaningfully reset

2021 seed = $30M equity/$60M FDV. Hot teams/categories going out higher

2022 seed = $15-20M equity/$30-40M FDV, with pre-seeds probably 30% below that

Yesterday's price is not today's price

— Regan Bozman (@reganbozman) September 20, 2022

3/ If you need to raise more money and haven't hit an inflection point since last round, vv tough situation

I’ve seen a lot of teams reopen old rounds at same terms and try to take in more money that way. Mixed results so far

— Regan Bozman (@reganbozman) September 20, 2022

4/ The bar for a Series A is also way higher

Some level of PMF is now table stakes. But there are *so few* teams in crypto that have any semblance of PMF, and hence Series A market is still relatively frozen

— Regan Bozman (@reganbozman) September 20, 2022

5/ Smart strategy I've seen is teams that raised a $1.5-3M ‘preseed’ last year are now going out for $3-5M at $30-50M, basically large seed

Not the outcome they expected last year, but few more years of runway at better terms than last round, very solid take in this market

— Regan Bozman (@reganbozman) September 20, 2022

6/ So where do we go from here?

Much darkness ahead

Grim outlook for vast majority of 2021 seed stage co's

Many overfunded sectors (web3 gaming + DAO tools) + overfunded ecosystems

Very few of these companies will raise Series A’s

— Regan Bozman (@reganbozman) September 20, 2022

7/ We recently looked through a few hundred teams that had raised seed funding last year based on @dovemetrics data

A laughably high percentage had not shipped anything

In a risk off backdrop, these teams are toast

— Regan Bozman (@reganbozman) September 20, 2022

8/ Historically seed stage crypto vc was pretty, pretty good

A friend’s fund backed ~few dozen companies in 2018 vintage fund and 95% of portfolio raised follow on funding or had some liquidity event

There is no chance that 2021 vintage is anywhere close to this

— Regan Bozman (@reganbozman) September 20, 2022

9/ Historically ~30% seed stage companies raise follow on funding

Crypto likely revert to this mean although this vintage could be worse given how many drunken sailors were allocatinghttps://t.co/CLlWoY6BR5

— Regan Bozman (@reganbozman) September 20, 2022