Regulation
What July’s EU MiCA implementation means for global regulation
Stablecoins are at the center of the crypto industry’s goals for a return to form.
This is because stable digital assets, which are designed to maintain a stable value by being pegged to a reserve asset such as a fiat currency (e.g. USD) or commodity (e.g. gold) , aim to provide the benefits of cryptocurrencies, such as security. , confidentiality and fast transaction times, while doing their best to minimize price volatility.
And with the announcement that, at the end of June, the historic monument of the European Union Crypto-asset Markets Act (MiCA) stablecoin regulations will come into force, compliance with this framework is a priority for stablecoin issuers, custody companies, trading exchanges, crypto-asset advisory firms and asset managers. crypto wallet.
The MiCA Regulation is part of the European Union’s broader strategy to bring clarity and security to the crypto-asset market. It aims to protect consumers, ensure financial stability and foster innovation in the digital currency space.
By establishing clear guidelines for the operation of stablecoins, MiCA seeks to mitigate the risks associated with these digital assets, such as volatility and potential market manipulation.
At the same time, the implementation of MiCA is taking place in a context where, to date, most government surveillance stablecoins and the crypto sector has been relatively theoretical.
MiCA will result in stablecoins being divided into two categories in the EU: “regulated stablecoins”, or those issued by certain regulated companies with permission to offer their tokens to the public and trading landscape; and “unsanctioned stablecoins,” or tokens that already populate the crypto market but may not fall into the regulated category and therefore be subject to certain additional restrictions when used across the economic boundaries of the EU.
Learn more: What CFOs Should Know About the Growing Use of Stablecoins
Understanding the MiCA framework
Under MiCA, fiat-backed stablecoins or e-money tokens that have exceeded a specified adoption threshold – measured by a set of seven quantitative and qualitative indicators – will face additional and increased regulatory requirements which will place them under the supervision of the European Banking Authority (EBA). , unlike any of the EU national authorities.
The regulation bans algorithmic stablecoins outright and requires that fiat-backed stablecoins be backed by a liquid reserve that has a ratio of 1:1, and also requires issuers to establish and maintain an asset reserve isolated from other assets and held by a third party. These measures aim to ensure that stablecoins can be reliably used for payments and as a store of value, thereby strengthening consumer confidence in digital currencies.
And as blockchain continues to gain mainstream adoption and traditional financial playerscompliance will be crucial to efficiently conducting business and increasing the adoption of digital assets across the EU.
Binancethe largest in the world — and often besieged — the crypto exchange has already announcement that it plans to “restrict the availability of unauthorized Stablecoins to users in the EEA, implementing incremental changes and product restrictions to ensure compliance and minimize market disruption.”
This approach, according to the company, “aims to achieve MiCA’s goals smoothly by transitioning users from unauthorized to regulated stablecoins over time as more regulated stablecoins become available in the market.”
“Currently, there are few regulated stablecoins with limited liquidity which may not be sufficient to support sudden demand across the industry,” the exchange added in the announcement.
At the same time, stablecoin issuer Circle published a paper titled “MiCA’s Importance Diet for Stablecoins – A Hammer to Crack a Nut?” which argues in favor of the “dual objectives of the MiCA importance regime – transfer of supervisory responsibility and introduction of increased prudential requirements – [to] be untangled.
With the June deadline fast approaching, the document does not appear to have had any impact on the requirements of the next framework.
Learn more: The Solana Foundation is going all-in on blockchain as a consumer payment system
What to Know About the Stablecoin Opportunity
The recent PYMNTS Intelligence report, “Can blockchain solve the cross-border payments puzzle?” noted that the integration stable coins in a company’s payment system also offers cross-border customers a fast, reliable and cost-effective alternative to traditional payment channels. Stablecoins can increase transaction speed and reduce currency risks, making them an attractive option for international transactions.
As a data point, the Solana The network processed $1.4 trillion in stable cross-border payments in March alone, per CryptoSlatehighlighting the scalability of on-chain solutions for cross-border payments.
“The true intrinsic blockchain valuewhich concerns the programmability of transactions, the immutability of transactions and the ability to make deliveries against payment and permanent payment types, has not yet been unlocked, ” MasterCard Director of Digital Jorn Lambert said in an interview with PYMNTS published last July.
And as the implementation of MiCA progresses, it will be crucial to monitor its impact on the stablecoin market and the broader digital currency ecosystem.
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