Author: Cointelegraph
Compiled by: Deep Tide TechFlow
Key points
MiCA regulations classify stablecoins into two categories: Asset-Referenced Tokens (ARTs) and Electronic Money Tokens (EMTs). These tokens must be fully supported by liquidity reserves at a 1:1 ratio and meet strict transparency and regulatory requirements to operate legally in the EU.
Algorithmic stablecoins, due to their lack of physical backing and reliance on market mechanisms to maintain value, are considered high-risk assets and are explicitly banned under MiCA regulations.
Stablecoin issuers must meet a number of strict requirements, including registering as an Electronic Money Institution (EMI) or Credit Institution (CI), publishing a detailed white paper, storing reserve assets at EU-authorized third-party custodians, and integrating Digital Token Identifiers (DTIs).
It remains unclear whether Tether's USDT meets MiCA requirements. During the transitional period of MiCA, its use and availability in the EU may be subject to certain restrictions.
If you follow the cryptocurrency space, you may have heard of the EU regulation called 'Markets in Crypto-Assets' (MiCA).
But what does MiCA mean for Tether USDT?
What is MiCA?
MiCA is a comprehensive set of cryptocurrency regulatory frameworks introduced by the EU, aimed at regulating crypto assets, including stablecoins. Its core goals are to maintain the EU's dominant position in the monetary system, ensure financial stability, and protect consumer rights.
MiCA can be seen as a statement of the EU's stance: 'We welcome cryptocurrency, but it must be done responsibly and safely.'
Stablecoins under MiCA
Stablecoins are a special type of cryptocurrency designed to maintain a stable value by being pegged to traditional assets such as fiat currencies (e.g., USD, EUR), commodities (e.g., gold), or even other cryptocurrencies.
According to MiCA regulations, stablecoins are divided into the following two categories:
Asset-Referenced Tokens (ART): Tokens backed by multiple assets (such as multiple currencies or commodities).
Electronic Money Tokens (EMT): Tokens pegged to a single currency, similar to traditional electronic money.
To ensure the safety and stability of stablecoins, MiCA requires that all stablecoins must be supported by sufficient liquidity reserves and maintain a 1:1 ratio with their underlying assets.
Did you know: MiCA stipulates that issuers of international stablecoins must use custodians authorized by the EU. For example, Circle's French subsidiary has issued USDC in Europe to comply with MiCA's regulatory requirements.
Ban on algorithmic stablecoins
One important regulation of MiCA is the ban on algorithmic stablecoins across the EU. Unlike ARTs and EMTs, algorithmic stablecoins do not have explicit backing from traditional assets and rely on complex algorithms and market mechanisms to maintain their value.
Due to the lack of clear and tangible asset backing, MiCA does not consider algorithmic stablecoins as asset-referenced tokens. Therefore, such tokens are essentially banned in the EU.
Compliance requirements for stablecoins under MiCA
If your company plans to issue stablecoins in the EU, you need to meet the following compliance conditions:
Register as an Electronic Money Institution (EMI) or Credit Institution (CI): The issuer must obtain an EMI or CI license to ensure compliance with necessary financial and operational standards. For example, issuing or publicly trading EMT requires an EMI license, while publicly issuing or applying for EMT listing requires a CI license.
Publish a white paper: You need to write a detailed document explaining the operation mechanism of the stablecoin, asset backing situation, potential risks, and operational structure.
Custody of liquidity reserves: You must hold sufficient liquidity reserves through a trusted third-party custodian and ensure that each stablecoin has 1:1 actual asset backing.
Regularly report reserve status: Transparent reports need to be published periodically so that users and regulators can clearly understand the asset backing of the stablecoin.
Digital Token Identifier (DTI): DTI is the 'digital passport' of stablecoins and must be clearly marked in the white paper to provide information about the ledger where the token resides, helping regulators trace relevant responsibilities.
The role of Digital Token Identifiers (DTI)
DTI is a unique identifier specifically used to identify digital tokens, established by the International Organization for Standardization (ISO) under the ISO 24165 standard. It assigns a unique and permanent identifier to each digital asset.
Similar to traditional securities using the International Securities Identification Number (ISIN) to identify stocks, bonds, and other financial instruments, the introduction of DTI brings order to the cryptocurrency market. These identifiers use a combination of letters and numbers to ensure that each digital asset can be uniquely identified.
The DTI system is managed by the Digital Token Identifier Foundation (DTIF), whose main purpose is to enhance market transparency, support compliance requirements, and strengthen interoperability between different blockchain networks and traditional financial systems.
By simplifying the tracking and management of digital assets, DTI can bring the following benefits to the market:
More efficient risk management: Helps businesses and regulators better monitor asset risks.
Optimized reporting processes: Simplifies the generation and submission of compliance reports.
More reliable market data: Provides accurate asset information, enhancing market trust.
If you are a stablecoin issuer, you need to follow these steps to apply for DTI:
Submit an application: Visit the DTI official website, fill in the details of the token, and submit the application.
Technical validation: The technical foundation of the token is audited by DTIF.
Allocation of DTI: After verification, your stablecoin will receive a unique DTI number.
For detailed application procedures, please refer to the official MiCA guidelines and DTI quick guide.
Is Tether (USDT) compliant with MiCA?
According to MiCA regulations, if stablecoins (like USDT) are classified as electronic money tokens (EMTs), the issuer must obtain a license from a credit institution or electronic money institution and meet a series of compliance standards. However, Tether has not yet met these requirements, raising questions about the legal status of USDT in the EU.
There are differing views in the market regarding the uncertainty of USDT's compliance. Some believe that USDT may face restrictions, while others think it may continue to operate during the transition period specified by MiCA.
Juan Ignacio Ibañez, a member of the MiCA Crypto Alliance Technical Committee, stated in an interview with Cointelegraph: 'Although no regulatory agency has explicitly stated that USDT is non-compliant, that does not mean it is compliant.'
He further pointed out that Coinbase's decision to delist USDT could be seen as a cautious strategy, but there are currently no clear regulatory directives requiring other exchanges like Binance or Crypto.com to take similar actions. He predicts that as the MiCA regulations are fully implemented, the regulatory environment for stablecoins will become clearer, and other exchanges may also face similar delisting decisions.
Discussions on USDT's status in the European market on social media have garnered widespread attention. Some believe that while USDT has not been banned outright, MiCA requires it to achieve compliance during the transition period. This means that USDT may not necessarily exit the EU market entirely, but its liquidity and scope of use may be significantly affected by the implementation of MiCA.
There is a viewpoint suggesting that USDT may not be able to continue trading in Europe after December 30.
It is worth mentioning that Tether supports the Malta-based stablecoin company StablR, which focuses on two main projects: StablR Euro (EURR) pegged to the Euro and StablR USD (USDR) pegged to the US Dollar. These tokens utilize Tether's tokenization platform Hadron, enhancing the flexibility and accessibility of stablecoin transactions.
Nonetheless, there is still uncertainty regarding whether USDT meets the compliance requirements of MiCA. Currently, the relevant regulatory agencies have not explicitly stated whether USDT satisfies the requirements of MiCA or other laws. Before an official announcement is made, any claims regarding its compliance or potential ban lack solid evidence.
Did you know: Tether's CEO Paolo Ardoino revealed at the PlanB event in Switzerland that Tether's reserves include $100 billion in US Treasury bonds, 82,000 Bitcoins (worth $5.5 billion at the time), and 48 tons of gold to support the value of its USDT stablecoin.
Will USDT still be used on DEXs after December 30?
Decentralized exchanges (DEXs) themselves may not be directly affected by MiCA due to their decentralized nature. However, EU users will still need to comply with the new regulatory requirements. This means users need to verify whether USDT meets the compliance standards of MiCA. Using non-compliant tokens may pose legal risks.
Which stablecoins comply with MiCA?
Compliant stablecoins adhere to the relevant laws, regulations, and standards set by authorities in various jurisdictions.
Compliance generally involves maintaining transparency, implementing strict anti-money laundering (AML) practices, and ensuring proper customer identification (KYC) procedures. Furthermore, compliant stablecoins must have verifiable reserve backing and undergo regular audits, which helps foster trust within the market.
Here are some stablecoins that comply with MiCA requirements:
EURI: Issued by Banking Circle, registered in Luxembourg as a Credit Institution (CI), DTI number LGPZM7PJ9, supports Ethereum and BNB Smart Chain.
EURe: Issued by Monerium, registered as an Electronic Money Institution (EMI) by the Central Bank of Iceland, supports Ethereum, Polygon, and Gnosis networks.
USDC and EURC: Issued by Circle Internet Financial Europe SAS (Circle SAS), registered as electronic money tokens, but as of December 26, their white paper did not provide DTI information.
EURCV: SG Forge's CoinVertible, registered as EMI in France, based on Ethereum network, DTI number 9W5C49FJV.
EURD: Issued by Quantoz Payments, registered in the Netherlands, DTI number 3R9LGFRFP, based on Algorand blockchain.
EUROe and eUSD: Issued by Membrane Finance Oy, registered in Finland, supports multiple blockchain networks including Concordium, Solana, Arbitrum, Avalanche, Ethereum, Optimism, and Polygon.
EURQ and USDQ: Launched by Quantoz Payments, supported by Tether, Kraken, and Fabric Ventures. These stablecoins are fully backed by fiat reserves and have obtained electronic money token licenses from the Dutch Central Bank (DNB).
EURØP: A Euro-backed stablecoin issued by Schuman Financial, fully supported by cash and cash equivalents. EURØP obtained electronic money token licenses from the French Prudential Supervision and Resolution Authority through its subsidiary Salvus SAS, with plans to launch on Ethereum and Polygon and expand to major centralized cryptocurrency exchanges in Europe. Notably, this token will be restricted in 107 high-risk jurisdictions, including Iran, North Korea, and Venezuela.
Future development direction of EU stablecoins
The implementation of MiCA will reshape the EU cryptocurrency market through strict compliance standards and a ban on algorithmic stablecoins.
While this poses challenges for established stablecoins like USDT, it also provides more development opportunities for compliant Euro-denominated stablecoins. The EU is setting a regulatory benchmark for the global cryptocurrency market, which other regions may follow, promoting a more unified and secure development of the global market.
