The next 21 months will be a clearing process focused on cash flow and endurance.

Written by: Conflux

On July 1, Taiwan's Legislative Yuan passed the "Virtual Asset Service Act" in its third reading.

The core of the bill is not complicated: VASPs (Virtual Asset Service Providers) and stablecoin issuers must obtain approval from the Financial Supervisory Commission to operate. Platforms that have completed anti-money laundering registration have 12 months to apply for a license, and an additional 21 months to obtain formal approval. If not approved by the deadline, platforms and individuals operating without a license could face up to 7 years in prison and fines of up to 100 million New Taiwan Dollars. Those involved in fraud or market manipulation will face sentences ranging from 3 to 10 years, with fines up to 200 million New Taiwan Dollars.

The Expiration of the "Lease" in the Gray Area

In recent years, Taiwan's cryptocurrency industry has existed in a very delicate space. As long as they completed anti-money laundering registration, they could attract users with a "compliant operation" label, while regulators did not truly enforce hard thresholds regarding licenses, internal controls, or cybersecurity.

This ambiguity has sustained a large number of small and medium exchanges and shadow service providers. Their moat is not technology, nor financial strength, but information asymmetry and regulatory sluggishness.

Now this moat has been filled in. Taiwanese lawyer Kevin Cheng stated bluntly: companies that have relied on regulatory loopholes to survive will no longer have any gray areas to hide in.

For ordinary investors, this means that the next 21 months will be a process of repricing trust. Which platforms are genuinely investing to acquire licenses and build internal controls, and which platforms are quietly shrinking or even exiting the market, will gradually become clear. Historical experience tells us that during every such window period, some exchanges will choose to "shut down rather than comply."

MiCA's Replica

If you feel that Taiwan's stablecoin rules seem familiar, you're right—it is almost a direct copy of the EU's MiCA (Markets in Crypto-Assets Regulation) model.

The core design of MiCA for stablecoins has two ironclad rules. The first rule is that reserves must be sufficient, isolated, and bankruptcy-remote, requiring issuers to maintain adequate reserves and ensure redemption mechanisms and operational safety measures to prevent liquidity crises and bank runs. The second rule prohibits paying interest to holders; Article 50 of MiCA directly prohibits electronic money tokens from paying interest to holders, with the simple rationale of drawing a clear line between payment functions and yield generation, preventing stablecoins from becoming de facto savings tools.

This time, Taiwan's legislation has nearly copied it verbatim—reserves must be held by domestic financial institutions, isolated from common stock, prioritized for repayment to holders in the case of bankruptcy, and the issuer is prohibited from paying interest. This is not a coincidence; it represents the consensus already formed among global regulators on stablecoins. The "safety standards" for the stablecoin sector have already been established by the EU; Taiwan is not innovating regulation, but replicating a validated template.

MiCA's requirements for exchanges and service providers (CASPs) follow the same logic. White papers, financial reports, and operational details must be publicly disclosed according to regulatory standards, aiming to enhance market integrity and investor trust; for companies with serious violations, regulators have the authority to permanently prohibit them from providing specific crypto assets or services. Taiwan's VASP licensing system, internal control requirements, and penalties follow the same logic of "first prove you deserve a license, otherwise you're permanently out."

Stricter than MiCA

The real difference is that Taiwan has sharpened the regulatory blade to be more stringent than the EU.

MiCA's penalties are primarily administrative—freezing funds, revoking licenses, imposing fines—is a "shut down" logic. Regulators can freeze funds suspected of violations or permanently ban companies from providing services, but there are no direct provisions that could send unlicensed operations to prison.

This time, Taiwan clearly included criminal liabilities in the law—operating a VASP or issuing stablecoins without a license can result in up to 7 years in prison; fraud or market manipulation results in 3 to 10 years. This is a fundamental difference. MiCA targets "companies," while Taiwan targets "people." For practitioners who are used to "the company being fined and then continuing under a new shell," Taiwan's approach effectively blocks their path—individuals can go to jail, and you can't just change the shell to evade consequences.

Additionally, MiCA provides member states with some flexibility in the transition period; countries like Germany, Austria, and Ireland have adopted shorter transitional windows than the unified period, while the Netherlands and Poland were even earlier, creating a more fragmented and gradual pace. Taiwan's timeline of 12 months for application and 21 months for approval is a hard deadline with no flexibility, compressing the sense of urgency.

Old Money Enters, Compliance Becomes the Chip

This law opens another door, allowing traditional financial institutions to directly apply to operate VASPs. Banks, brokerages, and other capital with licenses, risk control teams, and compliance budgets now have a legitimate entry ticket.

Kevin Cheng's assessment is that existing crypto companies will soon face a group of new competitors with "compliance capabilities far exceeding their own." The financial logic behind this statement is clear—often, the first beneficiaries when a regulatory framework is established are not the existing industry players, but traditional capital waiting to enter once the rules are clarified.

When rules are unclear, wild teams can move quickly and capture market share; once rules are clear, compliance costs become calculable, giving larger funds an advantage—they are not afraid of being slow, but are afraid of uncertainty. Taiwan's legislation has essentially removed the variable of "uncertainty" from the table and replaced it with the variable of "compliance cost."

For established Taiwanese crypto companies, this window period is the last chance to prepare. They must either complete licensing, capitalization, and risk control systems before traditional financial institutions establish their presence, creating a first-mover advantage that will be hard for later entrants to replicate; or prepare to be acquired or pushed to the margins of the market.

The Narrow Door of Derivatives

Amid tightening, legislators left a small gap.

The resolution requires the Financial Supervisory Commission to submit a plan to allow crypto companies to offer "cryptocurrency derivatives" within a year. This narrow door may be a key variable in the future.

Spot trading volumes are being diluted by compliance and are being divided among licensed giants. Derivatives—especially perpetual contracts and structured products—have always been the most profitable playing field for offshore platforms. If local compliant platforms can obtain this pass, it means within a limited framework they can operate businesses with higher leverage and provide risk hedging tools that complement traditional exchanges.

The premise is that they need to survive through the 21-month approval period. For many small and medium platforms, the cash flow on their balance sheet may not be able to outlast this countdown.

Taiwan is not inventing a new regulatory philosophy; it is transferring an already established and tested solution from the EU while also increasing the enforcement rigor. This poses double pressure on local practitioners—they not only have to meet internationally recognized compliance standards but also face stricter criminal lines than in Europe.

Conversely, this is also a signal: Taiwan has not started from scratch to design a local framework, but has directly aligned with the core provisions of MiCA—sufficient reserves, bankruptcy isolation, prohibition on paying interest. This set of "three pieces" is becoming a universal measure for judging the reliability of a stablecoin issuer, rather than a unique standard held solely by Europe.

However, the real watershed moment for Taiwan this time is not how closely the rules resemble MiCA, but how it has bet on "who can hold out until the license is approved." The 21-month approval period serves as a sieve for all players—platforms with ample cash on hand and the ability to absorb compliance costs will be able to comfortably complete their licensing and face direct competition from traditional financial institutions; while medium to small players with already tight cash flow are likely to exhaust themselves before the approvals come through.

Once the licenses are issued, who can survive, and who can obtain entrance to the narrow door of derivatives, remains a variable. The only certainty is this: the next 21 months will be a clearing process focused on cash flow and endurance.