GERMANY Trends and Developments Contributed by: Wolfgang Richter, gunnercooke GmbH
to interact in the system. This concept has been the subject of extensive ESMA guidance, distinguishing MTFs and OTFs from “bulletin board” arrangements that merely display trading interests. Article 3 (1)(18) of MiCAR incorporates the multilateral element directly. • First option: bilateral-discovery protocol. Users see each other’s identities and the specific terms of each other’s offers, and decide whether to transact bilaterally. The protocol facilitates discovery but does not perform matching. This falls outside the scope of Article 3 (1)(16)(d) of MiCAR and Articles 4 (1)(22) and (23) of MiFID II. The resulting contract is a bilateral agreement between identified users rath- er than system-driven matching. There is no indica- tion that ESMA’s longstanding position on bulletin- board systems for MiFID II should not also apply under MiCAR. Depending on the exact design and level of intermediation, residual classification risk may fall under intermediary services such as the reception and transmission of orders under MiCAR or arranging transactions under MiFID II, rather than a regulated trading venue. • Second option: the standard AMM (eg, Uniswap). Users contract bilaterally with the smart con- tract; the AMM’s curve responds mechanically to inventory. The user does not see, and does not contract with, any other user. The conventional analysis asks whether the AMM is an MTF, an OTF or a dealer arrangement under MiFID II by read- ing the textual definitions onto the AMM facts. This approach overlooks the structural function of AMMs. The MTF regime exists to compensate for opacity in matching: pre-trade and post-trade transparency obligations under Articles 3-4 and 6-7 of MiFIR, transaction reporting under Article 26, organisational requirements and market abuse surveillance all respond to the fact that traditional MTF matching happens inside the venue, invis- ibly to participants. An AMM has no such opacity. The price is the curve; the curve is public; the user sees the price before clicking confirm; every trade is verifiable on-chain. The transparency obligations are become largely redundant, the reporting obli- gations duplicate what is already public, and the surveillance obligations target a hidden matching process that does not exist. A functional argument can be made that applying the MTF regime to an
AMM imposes compliance cost without commen- surate regulatory benefit. The correct characterisation follows from the AMM’s actual economic substance: the user is presented with a publicly quoted price and bilaterally accepts that quote, rather than interacting with opposing third- party orders in a multilateral order book. Function- ally, this resembles principal trading. Under MiFID II, such activity may be characterised as dealing on own account under Article 4 (1)(6), Annex I, Section A(3); under MiCAR, it would generally fall within the exchange of crypto-assets for funds or for other cryp- to-assets (Article 3 (1)(16)(e)-(f)). These categories are designed for an identifiable counterparty that quotes and trades against users, with conduct, conflicts and capital obligations calibrated to that activity. They fit the AMM’s substance, where the MTF regime does not. The only remaining question is whether an identifi- able principal trader exists at the AMM level. This is the same control question developed above. Where an identifiable entity controls the AMM’s parameters, fees, eligible asset listing or upgrade authority, that entity is the principal trader and the regulated sub- ject. Where no such entity exists, there is no principal trader and the question does not arise. The matched- principal concern under MiFID II is relevant only where the protocol substantively performs match- ing between users on the same platform; a classical constant-product AMM does not – it offers a curve, and users transact against the curve. The AMM is therefore correctly analysed as principal trading by whoever controls the AMM, and the doctrinal effort goes into identifying that controller. The Decentralised Autonomous Organisation ( DAO ) as substitute for centralised control A DAO is a group whose rules, assets, decision-mak- ing processes and operations are administered pri- marily through smart contracts and blockchain-based governance rather than a traditional corporate man- agement structure. It is commonly understood to be a structure in which decision-making through voting is distributed in such a way that no entity or group of partners acting in concert can be identified as having control. Decisions are usually made through voting
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