Author: Macauley Peterson, Blockworks; Translated by: Bai Shui, Jinse Finance
As of December 30, 2024, MiCA officially comes into effect, marking a turning point in the EU's attitude towards crypto assets.
Despite the euro's significant position in TradFi—accounting for 20-30% of global foreign exchange reserves, SWIFT transactions, and trade flows—its share of global stablecoin circulation is less than 0.5%.
Industry expert and Circle's EU policy head Patrick Hansen expects this situation to change. He emphasized the importance of MiCA as "the most comprehensive regulatory framework for crypto assets globally."
"The EU has a unique opportunity to position itself as a global hub for crypto innovation," Hansen pointed out.
Reasons for the euro's lag in stablecoins
Hansen attributes the differences between on-chain euros and dollars to several factors:
1. Dollar-dominated liquidity: "The network effect surrounding dollar stablecoins is something euro stablecoins cannot catch up to. European users interacting with the global cryptocurrency market will choose the cheapest and most liquid currency."
2. Historical negative interest rates: "For a long time, in the eurozone, negative interest rates have called into question the business model of stablecoins."
3. Regulatory uncertainty: Prior to MiCA, euro stablecoins lacked a dedicated regulatory framework, hindering the development of institutional participants.
MiCA addresses the third point by creating a clear framework for stablecoins. Hansen noted that the enactment of the legislation has sparked interest from institutions, with major European banks and other participants exploring or launching euro stablecoin products. He emphasized that Circle launched EURC in compliance with MiCA, with reserves fully managed by a French-regulated entity, and noted that "we have seen a 60-70% increase in EURC supply, thanks to launches on multiple blockchains."
MiCA requires stablecoin issuers to hold reserves proportional to the tokens in circulation in the EU. Hansen explained that Circle uses a "dynamic rebalancing" model to comply with regulations.
"If we see an increase in the amount of USDC held by the EU, we will correspondingly increase European reserves," he said.
Integrating on-chain euro use cases
Hansen believes that the adoption of euro stablecoins has two main driving factors: regulated crypto capital markets and the practical application of stablecoins.
"Only stablecoins authorized under EU rules will ultimately be used as trading pairs in regulated crypto markets," Hansen said. "I would not be surprised by significant growth in this area."
This change prompted cryptocurrency exchanges to delist USDT from trading pairs for EU customers.
Hansen said that business use cases such as cross-border payments and tokenized financial instruments are gaining attention. "Eurozone business providers will inevitably demand risk management in euro-denominated assets," he said.
However, while MiCA provides a solid foundation, Hansen warned that it is only "version 1.0" and must continuously evolve to address emerging challenges. He also cautioned that the EU's Travel Rules (TFR) require additional user verification for certain transactions, which may create friction—especially for self-custody wallets.
Ultimately, the success of MiCA will depend on its ability to balance fostering innovation with protecting consumers and creating competitive local markets.
As Hansen said, "Only time (and the market) will tell if MiCA can achieve its goals."