What is MiCA?

At the end of the second quarter of 2024, the EU’s Crypto-Asset Market Regulation (MiCA) stablecoin system will officially enter into force. However, its implementation has faced some uncertainties and challenges, mainly related to the scope, application and impact of the new rules.

MiCA, the Crypto-Asset Market Regulation, is a comprehensive regulatory framework for crypto-assets and related services in EU countries. The regulation aims to promote innovation, ensure consumer protection, maintain market integrity and support the financial stability of the EU crypto market. The proposal for MiCA was proposed in 2020 and approved by European Council members in October 2022. It was subsequently published in the Official Journal of the European Union in November 2022 and officially entered into force last year.

The MiCA regulations consist of multiple parts that will be phased in over the next two years. The Stablecoin Regime (Chapter III and IV) comes into effect on June 30, 2024. MiCA divides crypto assets into three types: Asset Reference Tokens (ARTs), Electronic Money Tokens (EMTs) and other tokens. The regulation applies to the issuance, trading and provision of services in these crypto-assets within the European Economic Area (EEA).

The full regulatory framework for cryptoasset service providers (CASPs) will apply on December 30, six months after the stablecoin regime comes into effect.

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What impact does MiCA have on stablecoins like $USDT and $USDC?

Under MiCA, stablecoin issuers must be authorized and licensed by relevant EU national authorities. Stablecoins deemed “significant” based on a set of quantitative and qualitative metrics will face additional and significantly increased prudential requirements, including higher capital requirements, liquidity buffers and risk management controls.

These important stablecoins will be directly regulated by the European Banking Authority (EBA) rather than national authorities. Stablecoin issuers must maintain sufficient reserves to support the value of the tokens they issue, and have strict regulations on the composition and quality of these reserves. Other key requirements include transparency, disclosure and consumer protection.

Is $USDT about to be delisted?

Tether’s $USDT stablecoin is at the center of discussion as the stablecoin regime comes into effect. Tether said it would not apply for an e-money license or work with European banks that hold such licenses due to regulatory unfairness.

In March, OKX became the first exchange in the EU to stop supporting the $USDT trading pair, although the exchange will continue to support other stablecoins such as $USDC and euro-based trading pairs. Last month, Uphold announced that it would stop supporting stablecoins such as $USDT, $DAI, and Frax Protocol ($FRAX) to comply with MiCA regulations. Subsequently, Bitstamp stated that it would delist Tether’s $EURT, while other currencies are currently not affected.

Kraken said it is reviewing the status of $USDT, including potential delisting. However, the exchange said it will continue to support $USDT until further notice. Binance will limit $USDT services, but the change does not affect normal spot trading.

Circle becomes the first stablecoin issuer to obtain EMI license

Circle, also a stablecoin issuer, announced that it has become the first global stablecoin issuer to obtain an Electronic Money Institution (EMI) license under the EU’s new Cryptocurrency Market Regulation (MiCA). The license allows Circle to officially offer $USDC and $EURC to European customers, effective July 1.

Source: X Circle announces EMI license

With this license, Circle will be able to capture market share among the 450 million inhabitants of the 27-member EU. With a market capitalization of $32 billion, $USDC is the second-largest stablecoin, behind Tether’s $110 billion $USDT. Stablecoins are key infrastructure in digital asset markets, facilitating exchange trading and are increasingly used for trading and remittances.

Jeremy Allaire, CEO of Circle, said it is gratifying to witness this moment in the evolution and popularity of digital currencies. Looking back on the company's journey since its establishment 11 years ago, Allaire emphasized that the blockchain network will enable the issuance of fully reserve-based fiat digital currencies on an open and interoperable public network, which will be similar to the open network's impact on information publishing. and transformations in communications.

Source: Jeremy Allaire, CEO of X Circle, announced that Circle will officially provide $USDC and $EURC to European customers

To realize this vision, two key developments are necessary: ​​a major evolution of blockchain technology, and the establishment of new policies and laws around the world to integrate traditional currencies with blockchain infrastructure.

Ongoing challenges and uncertainties for stablecoins

Although MiCA stipulates that stablecoins are legal electronic currencies, stablecoin issuers still face many challenges and uncertainties. The first is the license application process. The process of obtaining an e-money license or a banking license is often expensive and time-consuming.

In addition to licensing requirements, MiCA adds additional uncertainty through issuance restrictions. Companies are not allowed to issue more stablecoins if they exceed a threshold of 1 million transactions per day or a total value of more than 200 million euros (about $215 million). How these distribution limits are measured is unclear. While both Tether and Circle offer European versions of their stablecoins, a large number of European users still use $USDT and $USDC, raising the question of whether these restrictions apply to all U.S. dollar-backed stablecoins or are limited to euro-denominated stablecoins. .

Overall, with the entry into force of the MiCA stablecoin regime, the stablecoin market is facing a new regulatory environment and challenges. Circle’s success in obtaining an EMI license represents an important step towards compliance and legalization in the stablecoin market, but there are still many uncertainties and challenges ahead.