In this interview with Dr Joachim Schwerin, Principal Economist in the Directorate-General Internal Market, Industry, Entrepreneurship and SMEs at the European Commission, we talk about his and the Commission’s approach to the future of the token economy in Europe. With the MiCA Regulation the Commission has taken a bold step. What is the story behind the new regulation and what is the vision?

Dr Joachim Schwerin, Principal Economist at the European Commission


The recently announced MiCA proposal has been received positively in the blockchain and crypto space, where regulatory clarification is hugely needed. Could you put some words on your – and I suppose, the Commission’s – vision behind MiCA?

The proposed Markets in Crypto Assets (MiCA) Regulation forms part of a broader package, the Digital Finance Strategy, adopted on 24 September 2020. This strategy has several elements, two of which  are relevant for applications built on distributed ledger technologies: MiCA and our innovative pilot regime for market infrastructures based on distributed ledger technology (DLT), which creates a safe regulatory environment for testing innovative DLT-based financial market infrastructures in the EU.

When it comes to the vision, the approach is even broader than this. The Digital Finance Strategy itself is closely linked to the EU Digital Strategy (adopted on 19 February 2020) as well as, for instance, our EU SME Strategy (adopted on 10 March 2020). The latter already includes two specific blockchain-related actions for SMEs, i.e. digital education and the objective of enabling SMEs to issue crypto assets and digital tokens. All of this is embedded into one of the Commission’s principal priorities: the digitalisation of our economy.

I think that the generally positive market response to the MiCA proposal stems from a careful balancing between improving legal certainty and supporting the significant innovation potential of DLT. We chose a carefully calibrated risk-based approach that creates a new category of tokens: crypto assets that are not subject to securities laws but a lighter regime. It fosters innovation by speeding up token issuance, harmonising rules within the Internal Market and allowing every type of token to operate within the EU if it complies with the clearly phrased set of rules laid out by MiCA. This, in essence, is a market-driven, bottom-up path to digitalisation and tokenisation that, from a philosophical perspective, benefitted from insights we gained when we started studying – without prematurely harmonising – decentralised alternative finance and crowdfunding a decade ago.

When did you realise that blockchain and crypto were about much more than shady scams and that it had to be taken seriously?

I have never believed that blockchain and crypto were shady scams, and I am not aware that anyone in the Commission ever expressed such an opinion. I liked the first emerging cryptocurrencies because of the principles they represent: entrepreneurship, decentralisation, privacy and resistance against a Big Brother mentality that increasingly infiltrates our societies. However, of course, it took time for me – as for everyone involved – to grasp the full potential of cryptocurrencies, and until six or seven years ago I thought that cryptocurrencies were nice gimmicks and not much more.

I will not surprise you when I state that the turning point was, of course, the distinction between the first, rather crude applications of blockchain and the technology as such. While we are all entitled to play with gimmicks, there needs to be more to them if a public institution spending taxpayers’ money engages with such a new technology. There must be benefits to the public that go beyond speculative gains for investors.

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“Blockchain, once seen from a broader perspective, clearly delivers such benefits. It does so by decreasing costs and time needed to execute transactions of all sorts, but much more importantly, it creates a trusted and secure environment anywhere and at any time for strangers not trusting each other elsewhere. This is the core of what we now call the token economy.”

Do you remember any particular occasions that convinced you about the potential of blockchain technology and the emerging crypto space?

A true game-changer was a brainstorming exercise within the European Commission in 2015 when all Commission officials were asked to propose EU innovation priorities for the next decades. Based on what I have just described, I proposed blockchain and its applications in fintech and beyond, meaning applications in the real economy throughout all sectors and value chains.

Blockchain emerged from this brainstorming also as a favourite topic in many other policy fields. At the end of the day, we published in 2016 a report titled “Opportunity Now: Europe’s Mission to Innovate”, which summarised the Commission’s firm intention to “make together … some bolder bets on potential breakthrough technologies, notably genomics, the brain, distributed ledgers and quantum.” Blockchain was one of the four game-changers among all sorts of innovation in 2015/16, and this mental exercise half a decade ago, in my opinion, gave the Commission the head start to very seriously engage with the different players in the blockchain/crypto universe and to gain experience and credibility.

When the initial coin offerings (ICO) hype began in 2017, we were ready to understand its potential and to prepare for action, despite the manifold flaws that at that time still prevailed in many business models.

How would you like to see the development of the blockchain and crypto space going forward?

Personally, my preferred scenario is a token economy, i.e. the emergence of a disintermediated ecosystem in which SMEs of all sizes and sectors – after all, 99% of businesses in the EU – can interact seamlessly with trading partners, customers and investors in a secure, digital environment. Disintermediation does not mean an absence of all intermediaries but the emergence of trustworthy intermediaries that add real value, without all the gatekeepers that prove so costly in terms of finance and data drain without providing real benefits.

Transactions of tokens – i.e. bundles of digital rights and obligations – are based on smart contracts in combination with digital (micro-)payment systems, governed by civil law and effectively enforceable. Value chains will be fully integrated and based on a pan-European, non-oligopolistic blockchain architecture. As most SMEs are embedded in a local environment, the empowerment of the local crowd, both as customers and micro-investors, is critical.


"In this token economy, supply and demand interact directly on secure and interlinked platforms while all data remains the property of the data subject, in line with fundamental rights as we define, protect and enforce them in Europe."

What are the most significant challenges and opportunities in this scenario?

The challenge is twofold. First, as it is currently a very long way off, we must not be discouraged by setbacks such as the occasional technological dead-end or some petty crypto fraud that will be instrumentalised by the legacy system. Second, we must protect the basic principles on which a token economy rests: privacy, social inclusion and technology-enabled trust outside the reach and control of allegedly “interested parties” that only drive their private agenda.

Against this stand the opportunities of such a token economy in Europe, which are perfectly clear; in a sense, what we are talking about is an all-encompassing democratisation of finance, production and trade.

Several countries have proven to be quite progressive in the field of blockchain and crypto – such as Switzerland, Germany, Liechtenstein and others. To what extent has your work been inspired by some of these countries – and perhaps by progressive countries outside Europe?

We live in an epoch of incredibly rapid technological change in many different fields of technologies, and as these fields increasingly interact, the rate of innovation will accelerate further. Entrepreneurs drive this process from bottom-up, not countries from top-down. In my opinion, countries are “progressive” if they incentivise and enable regulators to understand the needs of entrepreneurs and if they limit regulation to the absolute minimum that safeguards protection against clearly defined and significant risks but not against anything that might look incomprehensible or dubious at first glance.

An increasing number of countries are preparing or have already adopted allegedly pro-innovation rules. If, however, the objective is to gain short-term advantages or if these rules remain limited to parts of the crypto empire, this strategy will fail.

Being progressive in a sustainable manner means starting with profound philosophical, ethical and socioeconomic reflections that result in coherent changes not only of regulation but also of civil law, taxation, governance models that involve all citizens starting at a municipal level and, first and foremost, education. It is no surprise that countries that have a long and rich culture of liberal democracy and entrepreneurship, such as some Scandinavian countries and also Liechtenstein and Switzerland, are particularly progressive in the crypto domain. Also, it helps not to have a rigid legacy system that blocks innovation by default, which is why so many smaller countries are becoming fierce competitors in the crypto space that no one had on their radar ten years ago.

At the end of the day, it doesn't matter where good ideas come from, as long as they can disseminate. Moreover, there is more than one way towards the top. As an economic historian by trade, I compare the current epoch with the era that started more than 500 years ago – namely, that of Europe reaching out globally to discover the planet, settle and trade. Half a millennium ago, two small countries took the lead in this, Portugal and the Netherlands, with two very different governance models and similarly successful.

This is what we will also see in hindsight two to three decades from now. Europe has a lot of diverse yet competitive democratic and market-based business and governance models in the running. Some will prevail. We just do not know yet which, but this does not matter. Variation is the precondition for successful selection and this is the early stage in which we find ourselves today. We do not know what the future will look like, but we can have a lot of confidence that our values will prevail.



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