Written by: Aiying

Circle announced that its USDC and EURC stablecoins have complied with the EU’s new stablecoin regulations, becoming the first global stablecoin issuer to comply with MiCA regulations. From July 1, Circle officially issued these two stablecoins to European customers.

This is an important milestone in the development of the Internet financial system, which means that one of the world's largest economies has established clear regulations to make stablecoins a legal electronic currency, pushing the cryptocurrency market into a new stage of mainstream payment, financial and commercial infrastructure.

Prior to this, Aiying wrote a 10,000-word research report on the European MiCA Act: A comprehensive interpretation of the profound impact on the Web3 industry, DeFi, stablecoins and ICO projects, which deeply analyzed the impact of the bill on the industry, especially the stablecoin market. MiCA requires that stablecoins backed by legal tender must have sufficient liquidity reserves and obtain an "Electronic Money License (EMI)". In addition, it also stipulates the transaction volume cap and other asset support requirements for stablecoins. June 30 is an important node, requiring exchanges to remove stablecoins that do not comply with regulations.

Circle’s USDC is expected to take market share from its larger rival, Tether Holdings Ltd.’s USDT. OKX, Bianace, Bitstamp, and Kraken have already taken steps to change their support for USDT trading in the European Union this year, removing the ability to use the stablecoin to buy or sell other crypto assets.

Circle’s opportunity this time has historical similarities to the rise of USDT

Aiying mentioned in yesterday's article "[10,000-word long research report] Stablecoin track: model, operating principle, trend and thinking of Hong Kong stablecoin" that the biggest advantage of USDT is the first-mover advantage, but its rise is mainly due to the support of exchanges and the outbreak of the market. At the beginning of the wild era of cryptocurrency, from the early Bitcoin blockchain to the later Ethereum ecosystem, USDT was a well-deserved pioneer and also guessed the market explosion. Looking back at its currency holding addresses and market value, although it was established in 2014, it really started to rise in 2017. In addition to the bull market that year, USDT began to issue super-increases, which were criticized by the market for manipulating the price of Bitcoin.

But in retrospect, this is a case of reversing cause and effect. What is easily overlooked is that China closed virtual currency transactions that year, and more importantly, USDT was simultaneously launched on the top three exchanges that year.

Also at the moment, according to Chainalysis's "2023 Cryptocurrency Geography Report", the region accounted for 17.6% of global trading volume between July 2022 and June 2023. This share has helped Cricle clean up his house and let him gallop here due to the advent of the Mica Act.

And Cricle is almost certain to benefit from the growth and adoption of euro digital currencies, known as euro stablecoins. The MICA Act sets clear rules for the issuance and operation of euro digital currencies, enabling banks and electronic money institutions to use euro stablecoins as a core part of their products and services. This means that the entire European regulated financial sector can now adopt this network, significantly expanding the use of stablecoins in business and finance. This market is very huge from Aiying's perspective.

Cricle's global compliance vision and starting point have made it what it is today

Veterans in the cryptocurrency world know that USDC rose during the USDT crisis, and its transparent, regulated, and more liquid asset reserves won the favor of customers. Looking back at the rise of USDC, the sharp increase in its currency holding addresses usually corresponds to the decline in USDT holdings, which are usually when USDT has risk events, especially because it was the only stablecoin trading pair of the compliant exchange Coinbase in the early days. This regulatory blessing brought great benefits to the early expansion of the USDC market and was also its main competitiveness in impacting the top spot of USDT. Due to compliance, Defi protocols prefer USDC, and liquidity mining has enabled USDC to quickly increase in volume and gain more advantages on the chain. After Maker introduced the regulated stablecoin USDC in 2020, USDC became the first choice of major Defi protocols. Currently, the three major Defi protocols, MakerDAO, Compound, and Aave, are the main supporters of USDC. In addition to the benefits of regulation, more importantly, as the collateral of Defi protocols, USDC has lower volatility than USDT. The starting point advantage of USDC can be summarized as a compliance advantage.

What has Cricle done at the global compliance level?

Circle is registered as a money service business institution under the Financial Crimes Enforcement Network of the U.S. Treasury Department. It also complies with the laws of various states on money transmission business and is regulated as a prepayment method. Compared with USDT, USDC's reserve assets are independent. Assuming Circle goes bankrupt, these reserve assets will be protected according to New York Banking Law and Federal Bankruptcy Law.

Circle is the first crypto company to obtain an electronic money transmission license in the United States, the first company to obtain a New York BitLicense, and has obtained an electronic money issuance license in the United Kingdom. For a deeper understanding of the legal framework for payments in the United States, please read: [Payment Article: In-depth Analysis of the Legal Basis and Requirements for US Cryptocurrency Payment Licenses]

Two years ago, the EU reached the MiCA system, which was eventually approved by the European Parliament and became the most comprehensive stablecoin and digital asset market regulation in the world. Circle then announced the launch of the Euro stablecoin and made every effort to make it compliant with the new EU regulations. France has been at the forefront of establishing crypto and digital asset regulation, and Circle's choice of France as its European headquarters proves that this decision is wise. The company worked closely with the French financial regulator ACPR to bring its business into compliance with MiCA regulations.

Circle has now obtained an e-money issuing license from the ACPR and has become a MiCA-compliant issuer of USDC and EURC stablecoins. European customers can now directly access USDC and EURC through Circle Mint France.

USDC thus successfully became the only major global stablecoin that complies with Europe’s new stablecoin regulatory regime. Circle worked closely with regulators in France, the European Union, and the United States to achieve full fungibility of global stablecoins on the blockchain network, maintaining technological innovation while meeting strict regulatory standards.

Currently, all USDC and EURC in circulation in Europe comply with MiCA regulations. All EURC reserves held by Circle are managed under the supervision of the regulator in France, and USDC reserves held in Europe are managed by global systemically important banks in the EU. USDC held by European users is still fully fungible globally and can be traded, transferred, self-custodied, used for DeFi, etc. without any changes. For details, please see Aiying's previous article [S&P] USDC stablecoin stability assessment and how its reserve fund works.

In addition, we know that USDC is not directly exchanged with individuals. For USDT above $100,000, you can directly exchange it with Tether as long as you pay the registration fee, but Circle operates according to customer levels. Only its partners or Class A users (exchanges, financial institutions) are eligible to exchange with Circle. Ordinary individual users (Class B) need to go through third-party channels (such as coinbase). From now on, Circle will issue and redeem USDC and EURC directly with major institutions in the European market through Circle Mint France, including exchanges, market makers, brokerage companies, consumer wallets, fintech companies, payment institutions, banks and large enterprises. This market sales system greatly reduces the risk of money laundering for users and effectively manages and isolates the risk through the large B end.

Summarize

The launch of the MICA Act heralds a major shift in market structure. It is expected that in the next year, major jurisdictions around the world (including Japan, the United States, the United Kingdom, Singapore, Hong Kong, the United Arab Emirates, Brazil, etc.) will launch comprehensive stablecoin rules, all of which require strict regulatory compliance. The gray market space in the barbaric era has also been continuously compressed, and will eventually merge with the compliant regulatory market. We are all witnesses of this financial era change, and Aiying will continue to share this integration process with everyone.