MiCA’s stablecoin regulatory framework came into effect yesterday. However, the implementation of the regime has been met with some uncertainty and challenges regarding the scope, application, and impact of the new rules.
MiCA, or the Markets in Cryptoassets Regulation, is a comprehensive regulatory framework for cryptoassets and related services across EU countries. MiCA aims to promote innovation, ensure consumer protection, maintain market integrity and support financial stability in the EU cryptoasset market.
MiCA has multiple parts and will be fully implemented over the next two years. The regulation will be implemented in phases, with a stablecoin regime (Title III and IV) came into force on June 30 this year (yesterday).
MiCA defines and classifies crypto-assets into three main categories: asset-referenced tokens (ARTs), e-money tokens (EMTs) and other tokens. The regulation applies to the issuance, trading and provision of services related to these crypto-assets within the European Economic Area (EEA).
The full regulatory framework for crypto asset service providers (CASPs) will come into effect six months after the stablecoin regulatory framework, on December 30.
How does MiCA affect stablecoins like USDT and USDC?
According to MiCA, stablecoin issuers must be authorized and licensed by relevant national authorities in the EU.
Stablecoins are considered to be “important” based on a set of quantitative and qualitative indicators will face additional and significantly increased prudential requirements. These include higher capital requirements, liquidity buffers and risk management controls.
These stablecoins will also be subject to direct supervision by the European Banking Authority (EBA) rather than national authorities.
Stablecoin issuers must maintain sufficient reserves to back the value of the tokens they issue, with strict regulations on the composition and quality of those reserves.
Other important requirements include transparency, information disclosure and consumer protection.
Ongoing challenges and uncertainties
Licensing requirements are one of the main challenges for stablecoin issuers.
Stablecoin issuers in Europe must obtain an e-money license or a banking license, a process that is often costly and time-consuming.
Stablecoin companies can partner with a European bank with an e-money license instead of having to apply for a license, but this comes with many other complications, such as having to keep assets at these banks.
As of June 30, the current status of e-money license applications among stablecoin issuers is unknown.
In addition to licensing requirements, MiCA introduces additional uncertainty through release restrictions.
Companies cannot issue additional stablecoins if the stablecoins exceed a threshold of 1 million daily transactions used as a medium of exchange or their total value exceeds 200 million euros (about $215 million).
However, it is unclear how these issuance restrictions will be measured. While both Tether (USDT) and Circle (USDC) offer European variants, a large portion of European users continue to use USDT and USDC. This raises the question of whether these restrictions apply to all USD-backed stablecoins or just those denominated in euros.
Will USDT be delisted?
Tether’s stablecoin USDT has been the subject of discussion as the stablecoin regime now comes into effect.
Tether has stated that it will not apply for a cryptocurrency license or partner with a licensed European bank due to unfair regulation, while Circle is in the process of applying.
OKX was the first exchange to take action when it ended support for USDT trading pairs in the EU in March. However, the exchange will continue to support other stablecoins, such as USDC and euro-based pairs.
Last month, cryptocurrency exchange Uphold announced it would stop supporting several stablecoins, such as Tether (USDT), Dai (DAI), and Frax Protocol (FRAX), to comply with MiCA.
Following Uphold, Bitstamp said it would delist EURT, Tether’s euro-pegged stablecoin, while other coins are currently unaffected.
Kraken said it is reviewing the status of USDT, including the possibility of delisting it. However, the exchange noted that it will continue to support USDT until further notice.
Binance will restrict USDT services. However, this change does not affect regular spot trading.
Itadori
According to Decrypt
