Ilija Rilaković - Alternatives to MiCA

For those who have not been to previous um panel, I'm Ilia Lakovich and uh if you had not uh hadn't have it enough of Mika, there are some alternatives to it and I'll um guide you through some basics of Mika and then to alternative jurisdictions that you can consider as um an option for your uh business. So, as I said, a short intro to MEA uh positives and positive and negative sides uh and to uh jurisdictions that I deemed um good for uh your project, web 3 project, of course. So, uh who am I? Uh I'm attorney at law from Bgrade, Serbia. I'm one of the co-founder, not co-founders, co-organizers of uh ET Bgrade.

Uh I'm also uh a runner uh and when I'm not chasing clients, I'm chasing uh some personal records on health marathons. Um and my law firm is uh law decoded. So let's decode some uh ma uh complexities. Okay. So um Mika stands for markets in crypto asset uh regulation.

It uh has it provides a clear comprehensive and harmonized uh regulatory framework in the European Union. uh it gives definition of definition definitions of all key uh terms that are used uh in this piece of legislation. Uh it governs issuance of e-oney tokens which basically stand for stable coins. uh asset reference tokens those tokens uh who are backed by some let's say commodity such as gold or any other commodity and uh tokens other than e-oney tokens and asset reference tokens which basically stands for utility tokens. Uh it also provides requirements for crypto asset service providers or CASPs and um conditions that they have to fulfill in order to uh get CASP license and serve users in the European Union.

Uh it also uh governs uh prevention of market abuse which is common uh common feature of legislation for capital markets. But since tokens may have some features of uh of um financial instruments or similar forces drive their value on the exchanges, that's something that u that's that concerns Mika and that should be paid attention to. Of course, um it provides uh rules on who are the regulators and um bodies that oversee the whole uh take care that that Mika is applied uh in the common market. Um on dates, it uh began rolling out in mid um 2024. uh and full application started from the end of um uh 2024 with grandfathering period until mid of uh mid of next year.

So there were some uh good things uh actually many good things that Mika brought but there are um many downsides which are often either neglected or not um covered enough. So let's go through some of them. Although it states that NFDs are not covered by by Mika uh if uh NFTs are issued in series which uh effectively uh are not uh nonfgeable but they're fungeable. Uh Mika still could could apply that. That's to um prevent any manipulation with the with the rules.

Uh but anyways uh NFTs are so 2021 so maybe nobody still cares about NFTs. Um DeFi protocols are also excluded from the uh from the mika mika. So they're not directly regulated but as we discussed on previous panel uh some aspects of uh defy could be covered by by mika as well. For example, if you as a front-end developer for D5 protocol such as unis swap um provide services to to such uh platform, you could be uh liable liable for for some uh for some aspects of crypto asset service provisions such as custody because you provide access to D5 protocols. Mika sets very high standards for uh stable coins and that's not surprising because uh it may affect uh European monetary stability and monetary system and maybe affect the value of euro.

So um it has very strong requirements and um many conditions to meet if you want to issue your uh stable coin in Europe. Um it also makes uh difficult to comply because um of you can uh you can see what happened to um USDT uh they didn't want to to comply and they are uh pushed out of the of the EU unlike circle who decided to um accept what Mika requires and they obtained their uh licensed um mid of uh 2024. Uh again one thing that we discussed on previous panel is very high compliance u cost for startups because it's still early uh early days of MI application and many uh law firms advisor uh independent lawyers compete and want to u charge as much as possible for the for the services they offer and for that reason You can hear some fear-mongering uh in order to attract more projects to um to hire you and uh help you uh uh comply with the with the requirements. Uh another huge issue is that uh Mika uh overlaps with other EU rules. So your project um has to take into consideration many other rules such as anti-moneyaundering rules, transfer of fund uh transfer of fund regulations, GDPR, DORA which is digital operation resilience act uh payment services directive uh it's a huge issue these days uh on the interpretation of European uh bank authority on uh transfers of emanc Ans which consider that that also should be subject to uh payment services directive uh license and uh that poses a huge uh huge burden to projects u especially exchanges who uh transfer uh stable coins among the users.

Security tokens of course that's u also part of the previous uh previous point uh because uh if you issue a security token then it's uh MITIT 2 uh that applies to to you instead of uh instead of Mika but often it's difficult to assess which piece of legislation uh applies to uh to your company to your project. Um none projects are especially under pressure because if you are not um licensed under uh under Mika um you cannot service uh European clients. I mean you cannot uh openly advertise your services to the uh to the EU users and uh that basically uh requires you to stop offering your services to the to European market. There is one exception but that is only exception and you cannot rely uh as your to to that exception as your go-to market strategy which is called reverse solicitation. So uh the only case when you can serve European uh users is when those users approach to you and uh ask you for uh services uh you you can offer basically if you are um let's say coin uh which is based out of the EU um you can offer services to European to European users but only if they uh go to your platform and uh register by themselves on their exclusive initiative.

uh you cannot advertise in the in Europe uh such as conference like this or uh tweet post uh Twitter campaigns, LinkedIn campaigns and similar um this is on uh promises that Mika should have delivered. Uh it's questionable. So um dear friend and colleague from uh Electrocoin it's uh creation centralized exchange did an analysis that um looked into ultimate uh owners of projects that achieved uh to obtain uh make a license most of them are non-EU companies of course their uh European subsidiaries applied and obtained MA license But effectively uh that's that's uh not um uh they are not European companies that they're not EU cryptonative. Um Patrick Hansen from Circle from USDC uh parent company uh also did an analysis on the promises that u uh European authorities uh made and uh it's not that um encouraging because uh overregulation might stifle innovation and push projects out of the out of the EU. So uh this should stand uh for unbelievable but uh Google slides are not delivering its promises as well.

So one major issue that uh that is also uh current these days is that European um authority for personal data protection uh claimed that um nodes are data controllers and that u crypto projects should also comply with uh GDPR and the they took that interpretation to an extreme which means that uh ultimately uh if users users want that they have to um you have to effectively delete blockchain. What does it mean? you as a Facebook user, Instagram uh user or Google user, you can uh ask those uh providers to delete your data. But how do you ask in whom do you ask to delete your data from blockchain? It's impossible.

So that's why in the previous panel I said that um this comes either from um uh ignorance or um malicious intent to um kill web3 industry because uh of its features that provide anonymity and u privacy. So what what are the alternatives? Um given my experience with Panama, it might be a viable solution because it's not that difficult to incorporate uh company or foundation in Panama. Uh they offer uh solid privacy and asset protection uh framework. uh no corporate income tax if you achieve your uh if you earn your uh income outside of Panama, which as a uh crypto projects you uh likely will.

And there is a moderate annual franchise tax that is uh pays paid to maintain uh active status of your of your company. And I think it's around 300 uh $300. So it's acceptable when it comes to crypto. uh there is no uh specific regulatory framework and uh on multiple occasions uh Panameanian authorities said that they do not have authority um and mandate to uh interfere into crypto industry because it's not explicitly proh uh allowed as opposed to the um users and projects who uh can freely u use all the potential that crypto offers because if it is not explicitly forbidden then it's allowed. So no restrictions to uh develop any uh web3 uh projects products or services.

So, um, crypto is mainly unregulated, but it's legal and it's, uh, allowed to, uh, to have and to work with. [Music] Um also authorities stated that uh crypto assets are not classified as a legal tender securities or any regulated activities. So uh bank uh bank regulations, securities regulation uh and other related um uh rules cannot be applied to to crypto at present moment. So companies operating in web 3 uh have very relaxed position in Panama because uh they paninian uh framework has very light touch uh over the industry. So it's very flexible and uh gives a lot of potential for you to um be creative and to operate uh globally.

Uh as for the Serbian uh framework I mentioned some um in the previous panel but let's um uh dive deeper. So as a non-new country we are not uh obliged to uh apply mika. So no ma requirements. Uh I see that maybe in few years we will have to uh align our legislation with u uh with requirements that Mika poses such as um GDPR or VAT directive or um energy package that Serbian government uh implemented in previous decade. But I would say that Mika is not on the horizon yet.

Uh to align with uh Serbia uh recently became a SEPA network member but uh transactions within this network will be uh available mid of next year. Uh which I consider huge plus because it will make our lives easier and uh movement of capital as well. Uh it's also easy to incorporate uh a company and uh not um not exp u not expensive u usually not expensive uh so low costs of incorporation legal and operational uh costs especially in a service industry where you don't have to invest uh overly into uh machinery and um uh real estate because it's basically not uh uh not necessary for what you do. It's also supportive for uh startups. Um there are also a lot of tax breaks uh for for innovative startups.

Um relatively easy to open a bank account in u in Serbia unlike uh offshore jurisdictions that you probably heard of. It's uh difficult to obtain bank account. Also, you don't need uh a local agent, director or employees such uh is the case in other jurisdictions. So, basically, you as a foreign citizen can be director and uh that's sufficient to uh run your own uh company in Serbia. Uh employees are also uh not required to be Serbian but uh bear in mind that uh foreign citizens need to have uh work permit in Serbia.

Uh unlike Panama, no annual franchise tax. Um corporate income tax is 15% which is moderate moderate but only of course if there is uh profit to tax. uh VAT is 20%. Um and I would say the strongest side of Serbian uh of Serbia is a great developer uh pool especially in blockchain uh for all programming langu languages and um of course growing community. Our flagship uh event is Eid Belgrade uh and not that's not the only one but lot of local hackathons and meetups that happen regularly.

Uh on a web three side uh Serbia has law on digital assets few years now. It recognizes uh cryptocurrencies and tokens as a legitimate and legal uh class of assets which you can freely uh freely use with only a few exceptions. uh but they do not concern you because they are only tied to financial institutions such as uh banks, insurance company uh companies and uh similar companies, similar businesses. Um token issuance is fairly simple. Um you can uh easily issue token.

The only difference is uh whether you want to advertise your token or not. If you want to advertise it in Serbia, then you have to uh obtain approval of Serbian SEC of your white paper, which is not a huge requirement because it's fairly cheap and u you can obtain that approval within two to three weeks. So, it's uh I dare to say quite easy. Unlike other jurisdictions, uh it's very easy and simple to issue security- like tokens. Uh if you see that as um uh as something that fits your business model.

So if you want to uh issue security token in Serbia uh with very relaxed and flexible um uh framework Serbia's go-to place because it's exempted from capital markets requirements as I said uh white paper approval is not uh is not mandatory and um cost of uh that approval if you want it is around 700 euro which is fairly fairly cheap. Um as mentioned on several occasions during the previous panel Serbian SEC is quite friendly and open to all crypto projects. you can discuss your project your uh related to token issuance beforehand and uh that way be prepared for what might be expected from you. Uh we have several uh use cases that were proved in practice. So uh few Serbian companies a tokenized solar park walnut and hazeland fields factoring business which is um financial institution business heavily regulated but they managed to uh issue token they they were first to issue token in Serbia and the only one uh utility token which is basically NFT redeemable for a bottle of wine is um u winery that um issued this series of NFTts uh last year.

It was great um marketing move because there was huge wine fair uh last fall in in Belgrade. Um one project that uh still have not happened is project to enable tokenization of shares in LLC's. Uh we made uh draft of that uh law but it's still on hold due to other priorities of uh our government. I really hope that it will uh uh I really hope that it will um um pass the the parliament and be applicable in practice uh soon because it really offers good opportunity for many projects to um tokenize real world assets with u meaningful and full enforcibility if um uh if needed in court. And that would be it.

Uh I'm here to discuss any questions you might have. Uh and um you can reach out to me anytime uh over these channels of communication. Thank you for attention.

Thank you very very much to Ilia. Um I actually lived in Belgrade for 6 months so I can attest to the fact that the tech talent and the coders and developers and everything out there is is something to be seen. It's really really great place to be building. So really really interesting talk. Thank you.

Um are there any questions from the crowd? Yeah. Does anybody want to put their hand up here? Oh right here.

Thank you. uh um um I'm not so aware about MIGA and everything like not deep dive but when I see people uh that wants to incorporate their new uh startup or whatever in another country and then uh in a European country for me the reasons that I always hear is two the first one taxes and that's fair and the second one that to issue a token uh because if you go like in Switzerland land, Marshall Island, Bjin Island or whatever. It's way easier to iss token. Uh but the problem is on my on my side is like that for me is like um one problem of the crypto ecosystem web3 ecosystem that uh the first thing that you want to do also before doing a startup is that you are trying to think that to issue a token and we know that like 99% even more of the tokens outside are like useless and without any any reason. So like, okay, maybe Mika is too heavy.

It's um is not good for like innovation or whatever, but maybe it's better to have a regulation that doesn't allow you to issue token like it's the most easy thing to do because uh we have seen that most of the tokens are scams or only a way to grab money and uh go away or do something like that. How do you see that? What for you? What is like the the good uh the good amount of pressure that the regoratory has to do to also prevent these kind of activities? Uh well, I if you want if your intention and objective is to issue token uh and then rug then you don't need neither Serbia, Panama or any uh any jurisdiction.

and you just go to pal.f fun and then do your thing. Um I would say taxes are also important aspect but it should not be the only concern that you as a project have. Uh because of course there are some jurisdictions that uh are tax havens and don't have any taxes or just very low taxes. But they are labeled as um tax haven and thus often uh not welcome uh in other jurisdictions in terms of um anti-money laundering laws or primarily in in IML uh aspects.

Uh so if you as um um company that is based in uh tax heaven jurisdiction want to open subsidiary in eur Europe or um any other major market uh that might encounter some problems. Um and finally um how do you decide where to issue issue a token? Well, that depends on lot of factors and uh what is your business model primarily? Do you really need token now or you can achieve uh your goals by other other available means? So can you use contracts in order to collect um some fresh capital or you need token to run your protocol from what I've seen in practice um every token of course is not security but utility uh that's how it's branded uh but under the surface it's of course uh utilityh security like token because the point is to uh sell tokens, get money and uh you as um buyer of that token want to uh see the token pumps and then you sell your tokens and earn from it.

Um I'm not sure if that answered your question. It was uh a bit uh too broad but I was trying to give some

insights uh what to what to consider. So go ahead.

No no because it's like uh I'm from Italy and uh if I want to do a start but a startup in web three all the VCs and I I'm asking all I searching for VC money will say to me don't incorporate in Italy or in Europe because I we want you to make a token. Okay. So like uh I have some friends that have tried to do that and like our their their first um their first thing that they they were thinking is was like oh we're incorporated so I can launch a token so I can make VC happy but it will be but like on the other side I see okay maybe if the regular say to you that you can't launch a token like that maybe it's because you have to build a healthier business than only launching a token and then we will see like so I see like the the regulatory also as as a um something that says to you maybe you don't have to do that because it's not maybe healthy for for your for your company. Maybe you have to um you have to think more about your business model before and then if it's

as a legitimate product you will focus on your uh product first not the token itself because if that's the case then you don't really need uh

yeah but the VC will not give you your money. That's it. Okay.

Thanks. So, we've actually got some questions here on the board. Um, first of all, how do you obtain a work permit in Serbia as a foreigner so you can open a company? Sounds like you've already convince one person. Or can you contract an attorney to open the company for you?

Uh, what's so yeah um you can open a company in Serbia and based on that obtain residence and work permit. That that is possible. And can you uh contract an attorney? Uh yes. The only thing is that uh uh you might have to show up in person in order to complete uh bank papers business because banks are not always uh happy or um helpful at least uh when I as a attorney want to uh complete everything for on behalf of my client.

they want to see uh that uh that person uh in real life. That's the that's the case. So I would say that that's the only point where you as a individual have to show up uh show up in Serbia. Other things mostly can be done by uh based on power of attorney. And as for the first question, I don't know um anything about biz's framework to be honest.

So if you want to wait for the BLE talk that's coming in ETH glitch 2026. So wait for that guys. Big round of applause here for Ilia. Thank you so much.