According to DefiLlama data, 'the total market capitalization of stablecoins grew by 2.46% in the past week, currently reported at 182.489 billion USD. Among them, the total market capitalization of USDT grew by 0.07%, currently reported at 114.518 billion USD, with a market share of 69.82%.' The issuance of stablecoins has become an important growth point in the cryptocurrency market.
The EU (Markets in Crypto-Assets regulation, MiCA) is 'one of the most comprehensive digital asset regulatory frameworks to date.' Since the enactment of this legislation, Coinbase has announced that it will delist USDT for European users by the end of the year, and other exchanges have taken similar actions. This article will outline the regulatory framework of MiCA for EU stablecoin issuers, providing compliance references for enterprises and individuals venturing into the EU crypto market.
In the Mankun blockchain, we have provided a basic introduction to MiCA (see: Interpretation of the EU MiCA Act, how to comply with virtual currency custody services? | Mankun Web3 Legal Knowledge).
It is worth noting that due to space constraints, we cannot cover all compliance provisions in the legislation, but rather select important parts and provide preliminary explanations based on the literal meanings of the articles. Such explanations cannot fully reflect all the content of the provisions and are for reference only.
I. What are Stablecoins? Definitions and Classifications under MiCA
Stablecoins are a type of cryptocurrency that is pegged to the value of fiat currencies, commodities, cryptocurrencies, and other assets, designed to leverage the advantages of cryptocurrencies while minimizing price volatility.
Currently, in the regulatory framework of the EU (Markets in Crypto-Assets regulation, MiCA), stablecoins are primarily divided into Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs).
EMTs, which refer to currencies that maintain stable value by pegging to one official currency. EMTs are very much like the 'incarnation' of fiat currency in the real world within the Web3 space and can be compared to a CBDC (central bank digital currency) that can be issued by non-state entities.
'Electronic money token' or 'e-money token' means a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency.
Like EMTs, ARTs aim to maintain stable value, but they achieve this through different paths: by pegging multiple assets, which may include various currencies, rights, etc.
'Asset-referenced token' means a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.
This structure theoretically diversifies risk, but due to the diversification of underlying assets, it requires relatively stricter supervision. Compared to traditional fiat currencies, pegs to gold or government-backed currencies, ARTs adopt a 'portfolio' approach, which is more flexible. It can diversify risks through multiple configurations of underlying assets or choose a particular asset to maintain stability. It can be said that ARTs provide more options for the design and innovation of stablecoins.
II. Overview of Regulatory Key Points for Stablecoin Issuers
The main content of the MiCA legislation focuses on the various issuance and trading rules for ARTs and EMTs. Among them, Articles 16-47 (a total of 31 articles) are regulations on ARTs, while Articles 48-58 (a total of 10 articles) pertain to EMTs. For ARTs, which are more diverse stablecoins, the regulations in MiCA are more detailed. For the sake of brevity, we will focus on the key points regarding ARTs, and if ARTs or EMTs are specifically emphasized, we will reflect this in the title. If we refer to 'stablecoins,' it includes both ARTs and EMTs. According to the provisions of each chapter of MiCA, there are four comparatively important compliance points:
1. Authorization to offer asset-referenced tokens to the public and to seek their admission to trading
2. Obligations of issuers of asset-referenced tokens
3. Regulatory Reserve of Assets of Stablecoin Issuers
4. Identification of 'Significant' Asset-Referenced Tokens
III. Seeking Authorization to Offer and Trade ARTs
Qualification Access
Regarding the issuance of ARTs, no one may publicly offer ARTs in the EU, or seek permission to trade, unless that person is authorized as the issuer of ARTs and:
a) is a legal person or other enterprise established within the Union and authorized by the competent authorities of its home Member State in accordance with Article 21, and
b) Complies with the provisions of Article 17 concerning credit institutions.
Cryptocurrency White Paper
The white paper for stablecoins (EMTs/ARTs) should include all the following information:
1. Information about the issuer of the e-money token/asset-referenced tokens
2. Information about the e-money token/asset-referenced tokens
3. Information about the offer to the public of the e-money token/asset-referenced tokens or its admission to trading
4. Information on the rights and obligations attached to the e-money token/asset-referenced tokens;
5. Information on the underlying technology
6. Information on the risks
7. Information on the reserve of assets
8. Information on the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the e-money token/asset-referenced tokens
The regulations for ARTs and EMTs overlap for items 1-6 and item 8, but for item 6 related to information on asset reserves, ARTs have such provisions while EMTs do not. This indicates that MiCA has relatively higher asset reserve requirements for ARTs.
Additionally, stablecoin issuers should publish the approved crypto asset white paper on their website, and as long as someone holds that cryptocurrency, the stablecoin issuer should continuously disclose it on the website.
Finally, if the content of the white paper is incomplete, unfair, ambiguous, or misleading, the issuer of stablecoins shall bear legal responsibility for this.
In summary, the disclosure of cryptocurrency white papers is crucial for safeguarding investors' right to know. Stablecoin issuers should pay special attention to the completeness and accuracy of information disclosure to avoid unnecessary regulatory risks.
IV. Obligations of Stablecoin Issuers
By passing the first hurdle, once authorized, the issuer obtains access to issue stablecoins in the EU, but this does not mean that everything is settled, and the issuer can rest easy. The MiCA Act immediately stipulates the obligations of ARTs issuers (Obligations of issuers of asset-referenced tokens) as follows:
1. Obligation to act honestly, fairly, and professionally in the best interest of the holders of asset-referenced tokens: This obligation is mainly a principle-based guiding provision, although abstract, it provides guidance for the issuer's subjective purpose.
2. Marketing communications: Any marketing communication related to stablecoin trading should be clear, unambiguous, and consistent with the crypto assets. MiCA imposes strict requirements on the issuance and statements of stablecoins, aiming to avoid provocative or enticing statements and to control speculation risks from the source.
3. Ongoing information to holders of asset-referenced tokens: The issuer of stablecoins must provide ongoing information disclosure at least once a month. The disclosure regarding the issuance of stablecoins is not a one-time event but rather ongoing, and the issuer must ensure that the issuance information can continuously be known to regulatory authorities, investors, and other stakeholders.
4. Complaints-handling procedures: Stablecoin issuers should establish and maintain effective and transparent procedures to promptly, fairly, and consistently handle complaints received. Stablecoin issuers should internally establish a sound complaint handling and feedback mechanism to resolve conflicts within the platform.
5. Identification, prevention, management, and disclosure of conflicts of interest: Stablecoin issuers should implement and maintain effective policies and procedures to identify, prevent, manage, and disclose conflicts of interest between them.
6. Governance arrangements: The issuer of stablecoins should have sound governance arrangements, including a clear organizational structure, clear, transparent, and consistent responsibilities, effective procedures for identifying, managing, monitoring, and reporting risks they face or may face, and appropriate internal control mechanisms, including sound administrative and accounting procedures.
7. Own funds requirements: The issuer of stablecoins must at all times have funds equivalent to the following maximum amounts: (a) 350,000 euros; (b) 2% of the average amount of asset reserves referred to in Article 36; (c) one quarter of the fixed management expenses for the previous year. The issuer of stablecoins also needs to maintain a certain 'deposit reserve' to address potential risks during the issuance and trading of virtual currencies.
From the above provisions, it can be seen that MiCA's obligations for stablecoin issuers are relatively comprehensive, especially in terms of information disclosure (ongoing disclosure) and transmission (marketing communication). We can see that MiCA aims to prevent fraud, speculation, and other risks from the source, safeguarding the interests of stablecoin holders; on the other hand, these provisions also impose higher compliance requirements on stablecoin issuers.
V. Asset Reserves of Stablecoin Issuers
From the obligations of stablecoin issuers, we can see that MiCA imposes high requirements on issuers' own funds. Here, MiCA has specifically dedicated a chapter to describe the asset reserves of stablecoin issuers (Reserve of assets), and the key points are as follows:
1. Obligation to have a reserve of assets, and composition and management of such reserve of assets: The issuer of stablecoins must maintain a reserve of assets 'at all times.' It is particularly noteworthy that the asset reserve must be legally separated from the issuer’s assets, ensuring that in the event of the issuer's inability to settle its debts, creditors do not have the right to seek the asset reserve. This provision requires the issuer to achieve asset segregation, and to reduce this risk, the issuer must carefully consider the legal structure of its assets.
2. Custody of reserve assets: The issuer of stablecoins should establish and maintain custody policies for reserve assets to avoid the risk of excessive concentration of reserve assets.
3. Investment of the reserve of assets: If stablecoin issuers wish to invest part of the asset reserves, they can only invest these assets in high liquidity financial instruments with minimal market risk, credit risk, and concentration risk. They should avoid taking unnecessary risks with reserve assets for higher returns.
4. Right of redemption: Stablecoin holders should have the right to redeem the reserve assets at any time, and this holder's right requires the issuer to establish a sound policy for this permanent right of redemption.
5. Prohibition of granting interest: Issuers of EMTs are prohibited from granting interest related to EMTs, including compensation, discounts, etc.
Specific provisions for EMTs
In terms of the issuance and redemption of EMTs, MiCA stipulates that EMTs issuers must issue at face value upon receipt of funds, which is not reflected in the regulation of ARTs.
VI. Identification of Significant Stablecoins
In addition to general stablecoins, MiCA also defines 'significant' stablecoins, and stablecoin issuers should pay special attention to the additional regulatory requirements that 'significant' stablecoins may bring.
If the issued stablecoin (ARTs/EMTs) meets at least the following three criteria during the reporting period, it may be recognized as 'significant' and subject to additional regulatory requirements:
The number of stablecoin holders exceeds 10 million;
The value of the issued stablecoins, their market capitalization, or the asset reserves of the stablecoin issuer exceeds 5,000,000,000 euros;
The average daily trading volume and average total value of the stablecoin during the relevant period exceed 2.5 million transactions and 500 million euros, respectively;
The issuer of the stablecoin is designated as a core platform service provider by the European Parliament and Council (EU) Regulation 2022/1925;
The significance of the issuer of the stablecoin's activities on an international scale, including the use of stablecoins for payments and remittances;
The interconnection of the stablecoin or its issuer with the financial system;
The same issuer issues at least one additional stablecoin and provides at least one crypto asset service.
If a stablecoin is recognized as 'significant,' the regulatory authority will impose additional regulatory requirements on the stablecoin, such as requiring independent audits every six months from the date the EMTs are recognized as 'significant.' In addition, there are additional regulatory requirements such as fund supervision and reporting obligations.
According to MiCA regulations, in addition to being passively recognized as 'significant,' EMTs issuers can also apply to have their issued virtual currency recognized as 'significant.'
In summary, aside from general regulatory requirements, stablecoin issuers should pay special attention to the criteria for identifying 'significant' stablecoins. Once the issued stablecoins are recognized as 'significant,' MiCA will impose higher regulatory requirements on stablecoin issuers.
VII. Quantoz: Case Study of European Stablecoin Issuers
According to Bloomberg, Arnoud Star Busmann, CEO of the Dutch blockchain company Quantoz Payments, stated in an interview that Quantoz Payments will launch tokens pegged to the euro and the dollar, and the company has obtained authorization from the Dutch central bank to operate as an electronic money issuer. This lays the compliance foundation for its future market expansion.
Currently, 'Circle's EURC and Société Générale's EURCV currently hold a 67% share of the euro stablecoin market, while Quantoz's EURQ is attempting to carve out its own niche.' This move not only demonstrates Quantoz's market ambitions but also reflects the efforts of emerging crypto enterprises to seek compliance development and innovative breakthroughs under the MiCA regulatory framework.
In the euro stablecoin market, Circle and Société Générale have established a strong market advantage, accounting for more than half of the market share. In this case, Quantoz must seek a differentiation strategy to break through in a market dominated by existing giants.
With the gradual implementation of the MiCA regulatory framework, the compliance threshold for the stablecoin market is continuously increasing, which has a profound impact on the existing market landscape. On one hand, emerging issuers like Quantoz, who actively embrace regulation, are rapidly rising; on the other hand, many traditional stablecoin issuers that fail to meet MiCA compliance requirements are gradually retracting or even exiting the market. This trend indicates that the future stablecoin market will be dominated by those issuers who excel in compliance, transparency, and risk management.
Conclusion
This article focuses on the regulatory provisions of MiCA for ARTs, summarizing the compliance points for European stablecoin issuers regarding authorization, obligations, reserves, and 'significance' in four aspects. Due to space limitations, it cannot cover all regulatory provisions comprehensively, but aims to provide directional guidance for stablecoin issuers. For any enterprise or individual planning or intending to issue stablecoins in Europe, compliance is always the best way to control the risks of virtual currency operations. To manage risks, in addition to enhancing their own compliance awareness and focusing on risk prevention, consulting compliance experts or lawyers is also an important way to prevent stablecoin issuance risks.
