what does this mean for stablecoins?

On June 30, 2024, the “Markets in Crypto Assets” (MiCA) regulation will officially come into force on European territory, and important measures will be introduced to curb the expansion of stablecoins managed from abroad in order to favor correlated local ones. at the EURO.

Major exchanges on the continent such as Binance, OKX and Kraken have already prepared for the regulatory change and have revised some of the products offered to their customers in Europe.

All this, however, could limit the EU’s technological expansion in the crypto sector, leading to general regression rather than growth.

Let’s delve deeper into the subject in this article.

MiCA and stablecoin: crypto regulations that limit electronic money issuers will come into force on June 30

On October 10, 2023, the regulation “Crypto Asset Markets” (MiCA) was approved by the European Parliament with a favorable vote of 28 members, and now it is about to come into force, officially marking the introduction of the first European regulation governing the crypto sector.

The topics presented in the new text address a wide range of topics operating in the industry, such as crypto-asset issuers, crypto-asset service providers (CASPs), and crypto exchanges. , addressing key issues such as consumer protection, new obligations for fight against money launderingenvironmental impact and corporate social responsibility.

An entire section of the regulations is, however, dedicated exclusively to the world of stablecoins, more precisely in relation to issuers of electronic money token (EMT), that is, a specific type of crypto-asset that aims to maintain a stable value by referring to the value of an official currency.

This definition differs from that of Asset Referenced Token (ART) which identifies crypto-assets aimed at maintaining a value relative to the combination of several assets or official currencies.

The MiCA establishes the tax relevance of exchanges (swaps) between cryptocurrencies and electronic money tokens, while exchanges of cryptocurrencies for tokens referenced to assets should not be considered in this sense.

Source: https://www.theblock.pro/

The new MiCa regulation also states that the only stablecoins allowed to be freely traded in Europe are those that meet certain requirements.such as their supervision by the European Banking Authority (EBA) and the presence of a specific “electronic money license”.

These requirements severely limit certain established stablecoins both in Europe and on other continents such as USDT, which effectively becomes illegal due to the lack of a specific license, which can be obtained in case of depositing collateral assets with a credit institution based in the EU.

Furthermore, the new law which will soon come into force sets a maximum limit of 200 million euros in daily transaction volume. (quarterly average): this number is much lower than that volumes recorded daily by major stablecoins in the crypto market.

According to some experts on the subject, such as Mathieu Hardy of wealth management app OSOM, this limitation of MiCa on the stablecoin front can be seen as strong discrimination against e-money tokens with a USD peg .

By looking at the last 30-day average volume of the top USD stablecoins, we can see how the top 10 coins diversified by blockchain membership would far exceed the limit of 200 million euros daily.

Kaiko Research: a springboard for EURO-indexed crypto stablecoin

According to Kaiko Research, Impending MiCA regulation in Europe could reassess the scope of EURO-pegged stablecoinsissued and managed by companies based within the Union.

The new regulations are indeed seen as a springboard for local electronic money tokens, which are currently still recording particularly low volumes compared to those of other foreign electronic money tokens.

Already in recent months, several credit institutions have decided to offer their own stablecoin, such as Société Générale with the launch of EURCV.

As of October 2023, since the European Parliament approved the MiCA Regulation, weekly trading volumes of EURO-pegged stablecoins have seen a sharp increase, even temporarily exceeding 100 million, suggesting that demand is finally increasing on European markets.

We remind you, however, that the road to competing with products indexed to the US dollar is still very long.

As of today, according to the data from The Block, 99.3% of the market share of Ethereum stablecoins is dominated by those in USD, while the respective currencies in EUR collect only 0.63%.

The euro remains the “second best choice” compared to others DECREE currencies outside of the dollar in this context, being the second most used currency in the stablecoin space.

Overall, the USD-backed stablecoin continues to dominate the cryptocurrency bull and bear market.

Nearly 90% of all crypto transactions are executed using US dollar-backed stablecoins against the US dollar.

Their average weekly volume in 2024 was $270 billion, 70 times higher than that of their EU counterparts.. On the contrary, only 1.1% of all transactions are carried out using euro-backed stablecoins.

However, it is worth noting that this share went from almost zero in 2020 and is currently at all-time highs.

Although only time will tell if the introduction of Mica will push Euro-pegged stablecoins to compete with those overseas, in the meantime Experts already agree that the regulation is having a positive impact on the crypto sector even before it comes into effect.

For example, Dante Disparte, head of global policy at Circle, observed in an article on Capital risk investments in crypto projects on the continent increased almost 10-fold between 2022 and 2023, from 5.9% initially to 47.6%.

During the same period, the share of venture capital investments in the United States and Dubai declined significantly.

Exchange, Tether and USDT: MiCA regulation becomes independent for Europe

Major crypto exchanges operating in Europe have already prepared for the regulatory earthquake that will soon be unleashed with MiCa.and proceeded to delist stablecoins deemed non-compliant with the regulations from their trading pairs.

Binance announced in this regard that it had differentiated its offer between stable coin “regulated” And “unauthorized»without however explicitly specifying which parts will be excluded for European customers.

What we know at the moment is that the launch pads of FDUSD will be suspended, and that USDT rewards for the “Spend to Earn” section will no longer be credited after June 29, with the exception of rewards accrued before this period: However, it is not clear whether USDT, which happens to be the stablecoin most affected by the new regulations, can still be traded on Binance’s spot and futures markets.

The OKX exchange, on the other hand, delisted USDT already in Marchwithout reference to the MiCa regulation but with obvious underlying links, while Kraken recently denied any similar delisting intentions.

Meanwhile, according to the latest crypto market news, the UpHold’s decision to delist 6 stablecoins on July 1, including USDT, DAI, FRAX, GUSD, USDP and TUSDexcluding USDC from the list, emerges.

MiCA’s optimism towards USD-pegged stablecoins, although motivated to leave room for EURO counterparts, could generate integration issues for European exchange clientswho still use USDT as their primary means of transitioning from FIAT to CRYPTO.

In fact, as data from Kaiko Research highlights, on both Binance and Kraken, the USDT-EUR pair proves to be a more traded instrument in terms of volumes than BTC-EURO, demonstrating that Tether’s currency represents an essential resource for European markets.

In such a context, although OTC exchanges will continue to provide USDT-EUR liquidity, many traders may choose to turn to regulated alternatives like USDC.

Source: https://research.kaiko.com/insights/what-mica-means-for-euro-stablecoins

Paolo Ardoino, current CEO of Tether, has heavily criticized the next Mica regulation, highlighting how the obligation for issuers to hold at least 60% of their reserves in bank deposits constitutes a counter-effective measure in terms of security for the end customer.

In fact, the European Central Bank only insures bank deposits up to 100,000 euros, a figure significantly lower than USDT’s market capitalization of $112 billion.

Requiring issuers like Tether to build their reserves with simple bank deposits to comply with regulations provides a possible premise for one of the biggest financial disasters in the world of crypto finance in the event of a custodian bank collapse.

Recall that Tether currently holds reserves in cash and equivalents, US Treasury securities, precious metals, Bitcoin and other investments, offering a perfectly differentiated and weighted asset allocation according to the financial situation of the technology giant, which recorded profits of $4.5 billion in the first quarter of 2024.

USDT Reserves. Source: https://tether.to/en/transparency/?tab=reports

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