Regulation
MiCA stablecoin regime comes into effect amid uncertainty
Key points to remember
- The phased implementation of MiCA begins with strict regulation for stablecoin issuance and services.
- Licensing complexities and emission limits pose significant challenges under the new MiCA framework.
Share this article
The MiCA stablecoin regime came into force yesterday. However, its implementation has been fraught with uncertainty and challenges regarding the scope, application and impact of the new rules.
What is MiCA?
MiCA, or the Markets in Crypto-Assets Regulation, is a comprehensive regulatory framework for crypto-assets and related services in EU countries. MiCA aims to foster innovation, ensure consumer protection, maintain market integrity and support financial stability in the European crypto-asset market.
The MiCA proposal was introduced in 2020, with its final text approved by the members of the European Council in October 2022. Following its publication in the Official Journal of the EU in November 2022, MiCA was passed into law last year.
MiCA has many parts and will be fully implemented over the next two years. The regulation has started to be implemented in a phased manner, with the stablecoin regime (Titles III and IV) will enter into force on June 30 of this year (yesterday).
The MiCA Regulation defines and classifies cryptoassets into three main types: 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 cryptoassets within the European Economic Area (EEA).
The full regulatory framework for crypto asset service providers (CASPs) will become applicable six months after the stablecoin regime, on December 30.
How does MiCA affect stablecoins like USDT and USDC?
Under MiCA, stablecoin issuers must obtain authorisation and be licensed by the relevant EU national authorities.
Stablecoins deemed “important” Banks, based on a set of quantitative and qualitative indicators, will face additional and significantly strengthened prudential requirements, including 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 rules on the composition and quality of those reserves.
Other key requirements include transparency, 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. This process is usually costly and time-consuming.
Stablecoin companies can partner with a European bank that has an e-money license instead of applying for a license, but this comes with other complexities, such as the requirement to hold assets at those banks.
As of June 30, the current status of e-money license applications among stablecoin issuers remains unknown.
Beyond the licensing requirements, MiCA introduces additional uncertainty through its emission restrictions.
Companies cannot issue more stablecoins if the stablecoin exceeds a daily threshold of 1 million transactions used as a medium of exchange or a total value exceeding 200 million euros (about $215 million).
It is unclear, however, how these issuance restrictions are measured. While Tether (USDT) and Circle (USDC) offer European variants, a large portion of European users continue to use USDT and USDC. This raises questions about whether the restrictions apply to all USD-backed stablecoins or only those denominated in euros.
Is USDT being delisted?
Tether’s USDT stablecoin has become a talking point as the stablecoin regime is now in effect.
Tether has said it will not apply for an e-currency license or partner with a European bank that has one due to unfair regulation, while Circle is in the process of filing its application.
OKX was the first to take action by ending 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 announcement it would stop supporting several stablecoins, such as Tether (USDT), Dai (DAI), and Frax Protocol (FRAX), in accordance with MiCA.
After Uphold, Bitstamp said it would remove from EURT ratingTether’s stablecoin is denominated in EUR while other coins are not affected at the moment.
Kraken said it was USDT Status Reviewincluding a possible delisting. However, the exchange indicated that it would continue to support USDT until further notice.
Binance will restrict USDT services. However, this change does not affect normal spot transactions.
Share this article