From the beginning of July, crypto exchanges and stablecoin issuers in the EU will operate under the rules of the MiCA law.
The entry into force of the Markets in Crypto-Assets (MiCA) Act on 30 June will bring significant changes to the EU cryptocurrency industry. One of the key provisions of MiCA is the regulation of stablecoins, as well as rules for a wide range of crypto assets and exchange platforms.
What MiCA says
MiCA is a regulatory framework that clarifies and uniformly regulates the cryptocurrency market. It defines the classification of digital assets and specifies laws and areas of responsibility for their implementation.
Last April, members of the European Parliament voted in favor of the MiCA cryptocurrency regulation bill, making the EU one of the first jurisdictions in the world to introduce comprehensive regulation of crypto assets.
Companies will have to provide full disclosure to their customers, present a public business model, establish an effective governance system including risk management, register with the European Banking Authority (EBA), set up a buy-back mechanism and have sufficient reserves.
Additionally, issuers of asset-related tokens (ART) and electronic money tokens (EMT) must make sustainability information public from June 30, and crypto service providers must begin requesting disclosure requirements by the end of the year.
ART issuers (excluding credit institutions) may continue operations if tokens are issued before June 30, until they are granted or denied permission under the MiCA, provided they apply for permission before July 30.
Entities that fail to comply with the MiCA may be fined and banned from operating in the European Union.
What restrictions have crypto companies introduced?
Due to the introduction of MiCA legislation in the EU, some crypto companies have started restricting the use of stablecoins.
In March, OKX suspended trading of the largest stablecoin, Tether (USDT), for users in the European Union.
In early June, Binance exchange announced that it would restrict access to unregulated stablecoins for customers from the European Union. Binance will also limit the number of services that can hold unregulated stablecoins. The copytrading service and participation in the Launchpad and Launchpool programs will be completely unavailable to European exchange customers.
Crypto exchange Bitstamp has announced that it will delist EURT, Tether’s euro-pegged stablecoin, and other stablecoins that do not comply with new EU crypto asset legislation by June 30.
Also, European company Lugh announced that it would stop issuing its EURL stablecoin before the MiCA regulation came into effect.
State of the Stablecoin Market
According to CoinGecko, the stablecoin EURT quickly lost popularity in the European crypto community in 2023. In October last year, the capitalization of the crypto asset fell almost tenfold compared to the peak in 2022: from $231 million to $32 million.
EURT is the second largest stablecoin pegged to the euro in terms of capitalization. Compared to USDT of the same Tether, the volume of EURT in circulation is small: only 32.1 million coins as of June 26.
According to a report by analytics firm Kaiko, stablecoins backed by euro reserves account for only 1.1% of the total trading volume of stablecoins backed by fiat currencies.
The research also shows that most (90%) of stablecoin transactions are in US dollar-backed assets. Only 10% of stablecoins are backed by reserves in other currencies and real assets, including gold.
The weekly trading volume of dollar stablecoins such as USDT exceeds $270 billion. Meanwhile, the total turnover of euro stablecoins EURT, EURS, EURCV, AEUR and the like is only around $40 million per week. However, analysts expect growth in this segment as European regulators pressure exchanges to remove dollar assets from circulation.
What the experts say
Analyst MartyParty generally expects an explosion of stablecoins following the implementation of MiCA. He believes that banks, institutions and stablecoin issuers in the European Union will start producing trillions of euro-backed stablecoins in July.
Alexander Ray, CEO and co-founder of Albus Protocol, notes that new regulations require all organizations involved in business transactions using asset-linked tokens to implement many regulatory measures such as KYC and AML protocols.
He said that the implementation of KYC and AML protocols will definitely increase the operating costs of crypto companies, and users will ultimately pay for it.
Sven Mohle, managing director of BitGo Europe GmbH, added that with the introduction of MiCA, Europe is helping to set the bar for promoting international standards regarding rules and regulations related to anti-money laundering and countering the financing of terrorism. However, it is unlikely that users will see fully standardized international rules across the board.