By Jason Allegrante, Chief Legal and Compliance Officer, Fireblocks

Compiled by: Felix, PANews

Recently, the stablecoin rules in the EU Crypto-Asset Markets Act (MiCA) came into effect on June 30, and other regulations are expected to take effect in December. MiCA stipulates that stablecoins are prohibited from making more than 1 million payment transactions per day, or daily transactions exceeding 200 million euros (about 215 million US dollars). In response, Jason Allegrante, Chief Legal and Compliance Officer of Fireblocks, published an article criticizing the stablecoin restrictions and believed that the EU should provide fertile ground for the flourishing of stablecoins. The following is the full text:

The EU’s MiCA implementation marks a major milestone in the development of the crypto industry.

With the phased implementation of MiCA this summer, the EU has brought crypto market participants under regulatory jurisdiction for the first time. Although there are still uncertainties and challenges ahead, it is hoped that MiCA will be an important step in promoting long-term stability in the crypto market, strengthening user protection, and providing entrepreneurs with a more attractive investment environment.

The drafters of MiCA have made the right provisions in many areas. One of them is to recognize that some activities in the crypto ecosystem (such as decentralized smart contracts and NFTs) do not fully fit with the existing European financial system supervision concept (i.e. MiFID) and are not included in MiCA supervision. Perhaps there is also an understanding that regulators will impose further rules on these activities.

But will it be effective to impose such strict restrictions on stablecoins or “electronic money” tokens?

Under MiCA, certain dollar-pegged “e-money” tokens, including USDT, USDC and BUSD, are subject to restrictions on issuance and trading. These instruments (and certain others) are subject to a daily cap of 1 million transactions, or a daily cap of €200 million in value, in accordance with EU rules.

The prescribed cap is not only too small to support current market levels, but could also cause significant disruption to the normal operation of the crypto ecosystem.

The total market capitalization of stablecoins is currently a staggering $162 billion. USDT, USDC, and BUSD together account for about 75%. Europe’s share already exceeds the MiCA limit, so once implemented, action to restrict stablecoin use will need to be taken almost immediately.

The fundamental reason why all of this matters is that stablecoins have become integral to enabling many key use cases (especially non-speculative ones).

Importantly, stablecoins are a bridge between traditional finance and digital assets. As a reliable means of storing value for investors, stablecoins are a safe haven away from highly volatile assets. This is the exact opposite of the "crypto casino" that people have in mind.

Stablecoins have proven to be essential in cross-border payments, as they can protect those facing hyperinflation or devaluation of their own currencies. Stablecoins are also often used to interact with smart contracts and are a core component of lending and yield-generating systems.

Restricting such a thriving sector of the digital asset ecosystem risks defeating one of the original purposes of EU regulation: to foster a vibrant and innovative industry in Europe.

E-money restrictions could also put Europe at a disadvantage compared to other jurisdictions that have not implemented such measures. While these restrictions may be intended to protect the euro and mitigate potential systemic risks from the large-scale use of stablecoins, overly restrictive measures would stifle the growth and adoption of stablecoins and have significant adverse effects on EU stablecoin issuers and users.

For the above reasons, European authorities must re-examine the restrictions on electronic money.

Given the involvement of the European Securities and Markets Authority, the European Banking Authority and other European regulators in developing the secondary rules and technical standards, it is expected that some revisions to MiCA will be made. For example, the authorities could adopt a more granular tiered system that adjusts the limits based on the size and maturity of the issuer.

Whatever approach is taken, it should improve the current situation and promote a better balance between the market and regulation.

As the author has said on other occasions, stablecoins are one of the "weapons of mass adoption" of the digital asset industry. These products and services, such as ETFs and stablecoins, are able to enter consumers' lives and bring them a positive experience of blockchain technology with a very low threshold. Stablecoins meet this requirement in many aspects. As a product provided by regulated institutions, stablecoins are a window for banks and other financial issuers. In the process of being used by consumers, stablecoins are the perfect tool to enable Web3 commerce and smart contract interactions - in many cases, they can be seamlessly used as part of games or other network environments.

Although stablecoins are good for consumers, they also involve issues such as monetary policy, sovereign debt issuance, and global soft power export competition. European regulators are right to proceed with caution, but not at the expense of key technologies for the entire crypto ecosystem. If the digital asset market is to flourish under Europe's MiCA, stablecoins must be given the conditions to flourish.

Related reading: Circle is qualified to issue USDC and EURC under the MiCA Act. What does this mean for the crypto industry?