TokenBuilder Modules Explained (Part 2)

This is the second of a three-part series where we will be breaking down the different modules found on TokenBuilder’s platform. These are aimed at explaining at a more granular level the specifics, characteristics, and functionalities of each module. In this issue we will be exploring and learning more about Legal Builder and how the tool will help projects be Markets in Crypto-Assets (MICA)-compliant. 

MiCA will soon become a reality for crypto firms in the European Union (EU). The regulation is poised to become the benchmark and set the standard for all other crypto regulations. Projects will have to be attentive to ensure ongoing compliance with MiCA’s all-encompassing rules and principles. TokenBuilder is here to assist projects through all phases, from token model design to tokenomics development, of their MiCA compliance journey. Legal Builder, and more specifically Legal Opinion Builder, will help projects in crafting MiCA-compliant Legal Opinions. TokenBuilder will stand side by side with projects from start to finish and will grant them access to all the tools and services provided by partners in the Partner Hub.

MiCA Primer

The regulation applies to the issuing, offering to the public and admission to trading of crypto-assets, and provision of services in relation to crypto-assets.

For entities operating under this regime, they will be able to have access to a single EU-wide passporting license and avoid separate, individual licenses to operate across different EU member states. Nonetheless, such firms will still need to register in each country separately under Anti-Money Laundering (AML) regulations.

The regulation won’t just touch firms registered and operating in the EU, but will also impact firms marketing digital assets to EU customers. That said, it remains to be seen how the EU will be able to enforce MiCA requirements for entities operating outside the EU.

Legal Builder

Legal Builder is an AI-powered legal advisor designed to guide projects and startups through the complexities of MiCA. By leveraging AI to analyze and interpret MiCA's provisions, Legal Builder can provide comprehensive assistance in several key areas:

Digital Assets Categorization

The categorization of digital assets under MiCA is clearly delineated. The tool meticulously reviews this categorization and assists projects in assessing whether their assets qualify as asset-referenced tokens (ARTs), e-money tokens, or other crypto-assets. As part of this assessment, the tool will thoroughly examine and analyze ARTs, which under MiCA face stricter rules due to their potential adoption as means of payment.

Issuer Obligations

Issuer obligations are extremely stringent under MiCA and, as a result, Legal Builder has exhaustively reviewed these to ensure compliance for projects interested in issuing tokens. The tool provides insights into whitepaper requirements and management probity standards. Under MiCA’s Issuer Obligations it is imperative that projects produce a detailed whitepaper, retain transparency, and steer clear of any misleading marketing communications.

Service Provider Requirements

MiCA has set clear conditions and requirements for crypto-asset service providers (CASPs). Legal Builder has carefully reviewed these, focusing on the need for EU-based authorization and compliance with prudential and organizational conditions. The tool helps projects navigate through the rules on the safekeeping of clients' funds, mandatory complaint-handling procedures, and conflict-of-interest rules, essential for CASPs to operate within the EU.

Operational License Guidance

Legal Builder assists with the operational license requirements needed for CASPs, offering  step-by-step assistance through the authorization process. This encompasses understanding the specific prudential requirements, organizational conditions, and the operational nuances of running crypto-asset services in compliance with MiCA.

Regulatory Changes and Adaptation

Legal Builder continuously updates projects on MiCA amendments, leveraging AI to interpret and advice on regulatory changes.The tool ensures that projects and startups can achieve and maintain compliance with MiCA, positioning them for success in the European crypto-asset market.

Legal Opinion Builder

Issuing a token has become complex. Listing on exchanges is time-consuming and often teams do not have the bandwidth to create exhaustive, detailed Legal Opinions. That said, getting listed on exchanges is key and formulating a thorough Legal Opinion is essential. Legal Builder will assist projects to craft a Legal Opinion tailored to their characteristics and priorities, thanks to Legal Opinion Builder. This instrument, part of the Legal Builder module, will generate tailor made Legal Opinions at the click of a button, once projects have uploaded all the necessary data on the platform.

Tokenomics & Distribution

The tool will help projects to clearly define the token’s: total supply; fully diluted value; initial market capitalization; and the allocation and release schedules.

Comprehensive Risk Assessment

The Legal Opinion Builder tool will help projects develop a comprehensive risk assessment as part of their Legal Opinion. More specifically, the tool will assist projects in thoroughly reviewing implications tied to: market risks, regulatory risks and technological risks.

The mitigation strategies suggested by the tool will vary depending on the nature of the token in question, be it a RWA token, utility token or meme coin. Project teams will be challenged to handle hurdles that are often unexpected and will require readily adaptable and implementable responses. The tool will help teams craft dynamic, cross-disciplinary mitigation strategies, such as developing relationships with the regulatory authorities of interest and establishing a dedicated risk team capable of neutralizing external threats, so that risks of any nature will be promptly handled.

Comprehensive risk management is an ongoing endeavor and requires continuous work and dedication. The tool will help projects to continuously stay abreast of the latest regulatory developments, so that their Legal Opinion will always be up to date and MiCA-compliant.

Data Protection & Privacy

Data protection and privacy are pivotal when it comes to issuing a token. Legal Opinion Builder will guarantee projects that users’ personal data is protected at all times, ensuring regulatory compliance. For example, for projects wishing to issue tokens in the European Union and the broader European Economic Area, the tool will assist in following and adhering to the General Data Protection Regulation (GDPR).

KYC & AML Compliance

In the ever-evolving and fast-paced world of digital assets, ensuring rigorous Know Your Customer (KYC) and AML compliance is paramount for projects.

In terms of KYC Procedures, the Legal Opinion Builder tool will assist in defining a thorough initial Customer Due Diligence (CDD) process. As part of this process, users will be asked to provide their full name, date of birth, residential address and a government-issued identification number. For entities, this process extends to understanding the nature of the business, ownership structure, and obtaining identification details of beneficial owners.

Another key component of this process is Document Verification, whereby users will be required to verify their identity by providing a proof of identity and proof of address documents. For those projects wishing to go above and beyond, the tool will also provide the possibility to define and include Enhanced Due Diligence as part of their overall KYC procedure. This way projects would be prepared for the eventuality of monitoring the behavior of high-risk customers by adopting additional verification steps and ongoing monitoring to mitigate potential risks.

In terms of AML Monitoring, the tool will assist projects in carefully specifying the measures and techniques used to monitor customer transactions on an ongoing basis in order to identify and investigate any suspicious activity. The tool will also advise projects on the selection of innovative systems capable of flagging any unusual patterns that deviate from a customer's typical behavior.

The tool will also aid in specifying that all customers will be screened against global sanctions lists and watchlists. It will also be clearly outlined that sanctions screening is an ongoing exercise and albeit that the screening will take place once customers will be onboarded, it will be constantly updated to reflect any changes to sanctions lists.

Marketing & Promotional Materials Compliance

As part of the process, projects will have to undergo an exhaustive review of their promotional content, across various platforms and formats, to ensure that it is all MiCA-compliant. The aim of this review is to check that no content explicitly specifies any guaranteed returns or that could be interpreted as misleading, in line with MiCA’s investor protection mandates.

In terms of scope, the review will cover a wide spectrum of marketing and informational materials, including but not limited to: official website; project’s documentation; social media presence; direct communication channels (e.g. Telegram and Discord); and any material relevant for the Token Generation Event. Finally, projects will have to include the findings of the review in their Legal Opinion.

The Future of Crypto in Europe

MiCA represents a tremendous opportunity to further boost crypto’s popularity within the EU. Our goal is to service projects with AI-powered instruments, such as Legal Builder, to enable them to bring to market exciting, innovative, and profitable tokens across sectors. Having the right tools isn’t enough to bring this vision to life, we need the essential expertise, products, and experience of our partners. We’re leveraging our network of specialized partners, whose expertise in legal advice, KYC/AML, regulatory filings, and smart contract and security audits will be seamlessly integrated into TokenBuilder to enhance the services at projects’ disposal. All of this and more can be accessed on TokenBuilder’s Partner Hub. Reach out and don’t miss out on the fun.