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digital daily: Second Mover Advantage

"We want France to be the European hub of the crypto-asset ecosystem." declared Bruno Le Maire, the Finance Minister of France. His enthusiasm follows Europe’s finalization of the Market in Crypto Asset (MiCA) regulation, two years in the making. Europe aims for MiCA to give the EU a first-mover advantage with regulatory clarity. Most notably, MiCA creates the first-ever licensing regime for digital asset wallets and exchanges. Operators in the EU must live by these rules, and they elegantly cover unhosted wallets (‘self-custody’). For a digital asset wallet address in the custody of a private user, transactions are under the same rules when they interact with hosted wallets. Any transaction of more than 1000 euros will require the regulated entity to verify the identity and control of the unhosted wallet. This will appeal to EU regulatory peers – the licensing regime can become the global standard. But other rules are open for regulatory competition. The second mover's prerogative is to exploit the unintended weakness of the trailblazer. For one, the guidance on stablecoin is purposefully vague. The regulations will not permit private stablecoin to scale as a means of exchange. This implicitly supports a central bank digital currency. But what does it mean for US dollar stablecoin? Unclear. MiCA’s constructive ambiguity opens the path for private digital euros to play a bigger role. US regulators and operators will take note. The treatment of NFTs is also an unusual element of uncertainty. NFTs were argued to be outside of the scope of MiCA, mirroring traditional markets. In the end, “large collections” will be covered by MiCA, with the precise language only to be finalized by 2024. Other regulators will see this as an opportunity to mirror what they like and take ground where they don’t. Regulatory policy thrives with the second-mover advantage.