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Restrictive EU rules on stablecoins come into force on June 30, issuers have little time left
Tether, Circle and other greats stable currency Issuers will soon be put on a leash in the European Union.
With the new rules coming into force on June 30, they will not only require proper authorization to operate in the 27-nation trading bloc, but will also face strict limits on transaction numbers and values set out in the Markets in Crypto Asset (MiCA ) legislation.
Such regulations mean that some of the largest stablecoin issuers, including Tether, whose dollar-pegged USDT is the world’s largest by market capitalization, and Circle, responsible for the second-largest USDC, may not be able to operate in the EU, said Robert Kopitsch, secretary general of Blockchain for Europe.
“Non-EU euro-denominated stablecoins, if they cross a certain threshold, they have to stop issuing them and using them, and that creates a problem because 99% of the stablecoin market is in USD,” Kopitsch said on the sidelines of the Consensus 2024 conference in CoinDesk held in Austin, Texas last month.
MiCA is the complete package of EU rules for the cryptocurrency sector. It was passed into law last year and allows companies authorised by one member state to operate across the bloc.
According to the law Article 23companies must stop issuing asset-backed stablecoins that are used as a medium of exchange for more than 1 million transactions or a value of more than €200 million ($215 million) per day. The stablecoin rules will come into force at the end of the month, with the other provisions due to come into force in December.
Blockchain for Europe and the Digital Euro Association – a think tank – have tried to fight the measures in a 2022 letter claiming to have effectively banned large stablecoin issuers.
An EBA spokesperson told CoinDesk that the provisions do not prevent companies from issuing stablecoins denominated in assets other than the euro. The key is whether they are used as a medium of exchange, to pay for goods or services. In that case, specific limits apply.
Issuers can serve Europeans without limitations when tokens are not a medium of exchange, Jón Egilsson, co-founder of Monerio he said in a statement. This includes transactions between currency areas, peer-to-peer transactions and where a cryptocurrency is exchanged for an electronic money token, she said.
While the EBA has not yet clearly defined how it will measure these values, a the consultation document suggests that transactions with both parties based outside the EU may be excluded, but any transaction with at least one party in the EU may be counted.
According to the consultation, a transaction includes both on-chain and off-chain transfers. Movements between addresses or accounts of the same person are not considered a transaction.
A spokesperson told CoinDesk that a final report on how the EBA will measure transactions is likely to be released by the end of the month.
Companies that have had to suspend issuance will have to submit a plan showing they can meet the limits before they can be reinstated. That could be tough: USDT’s daily global trading volume is around 27 billion dollars according to data from CoinGecko. USDC is $5 billion.
Another obstacle is obtaining the necessary certification.
“When you are a stablecoin issuer at the European level you have to have an electronic money institution license or a banking license, which is a long and very expensive process,” Kopitsch said.
So Tether, Circle and other issuers have just three days to obtain an e-money license to operate legally.
Circle that has been conditionally registered as a Digital Asset Service Provider with the French Financial Markets Authority in April, aims to obtain an e-money license by the deadline, a company spokesperson said.
“Circle is committed to ensuring full compliance with EU MiCA regulations. We intend to transfer the EURC to the EU and issue it by Circle France in a MiCA compliant manner,” the spokesperson said. “Furthermore, we intend to issue USDC to our EU-based clients from the same entity in compliance with MiCA and subject to regulatory approval.”
EURC is the company’s euro-backed stablecoin. Tether’s equivalent is EURT. Earlier this week cryptocurrency exchange Bitstamp has delisted Tether tokenquoting MiCA. OKX has delisted USDT in March, saying it wanted to focus on euro-denominated liquidity in the region.
“Tether has engaged extensively with its European exchange counterparties regarding requirements, including those related to the ongoing listing of USDT and other Tether tokens, and interpretation of key regulatory provisions,” said Paolo Ardoino, Tether CEO, in a statement. “While Tether is optimistic about the implementation of MiCA, it remains critical that any stablecoin regulatory policies enacted are balanced, protect consumers, and foster growth in our emerging industry.”
“The question is what happens next because there is a growing awareness that a solution is needed,” Kopitsch said of the restrictive nature of stablecoin rules.