Author: Cointelegraph
Compiled by: Deep Tide TechFlow
Key Points
The MiCA regulation divides stablecoins into two categories: Asset-Referenced Tokens (ARTs) and Electronic Money Tokens (EMTs). These tokens must be fully backed 1:1 by liquid reserves and meet strict transparency and regulatory requirements to operate legally in the EU.
Algorithmic stablecoins are considered high-risk assets due to their lack of physical backing and reliance on market mechanisms to maintain value, and are explicitly prohibited under the MiCA regulation.
Stablecoin issuers must meet several strict requirements, including registration as an Electronic Money Institution (EMI) or Credit Institution (CI), publishing a detailed white paper, storing reserve assets with EU-authorized third-party custodians, and integrating Digital Token Identifiers (DTIs).
It remains unclear whether Tether's USDT complies with MiCA requirements. Its use and availability in the EU may face certain restrictions during the MiCA transition period.
If you are following the cryptocurrency space, you may have heard of the EU regulation called the 'Markets in Crypto-Assets' (MiCA).
But what does MiCA mean for stablecoins like Tether USDT?
What is MiCA?
MiCA is a comprehensive set of cryptocurrency regulatory frameworks launched by the EU, aimed at regulating crypto assets, including stablecoins. Its core objectives are to maintain the EU's dominance in the monetary system, ensure financial stability, and protect consumer rights.
MiCA can be seen as the EU's statement of intent: 'We welcome cryptocurrencies, but they must be conducted in a responsible and secure manner.'
Stablecoins under MiCA
A stablecoin is 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, stablecoins are divided into the following two categories:
Asset-Referenced Token (ART): A token backed by multiple assets (such as multiple currencies or commodities).
Electronic Money Token (EMT): Pegged to a single currency, similar to traditional electronic money.
To ensure the safety and stability of stablecoins, MiCA mandates that all stablecoins must be supported by sufficient liquid reserves and maintain a 1:1 ratio with their underlying assets.
Did you know: MiCA stipulates that international stablecoin issuers must use EU-authorized custodians. For instance, Circle's French subsidiary has issued USDC in Europe to comply with MiCA's regulatory requirements.
Ban on algorithmic stablecoins
An important provision of MiCA is the prohibition of algorithmic stablecoins in the EU. Unlike ARTs and EMTs, algorithmic stablecoins do not have explicit traditional asset reserves 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 classify algorithmic stablecoins as Asset-Referenced Tokens. Therefore, such tokens are effectively 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): Issuers must obtain an EMI or CI license to ensure compliance with necessary financial and operational standards. For instance, issuing or publicly trading EMT requires an EMI license, while public issuance or application for EMT listing requires a CI license.
Publish a white paper: You need to write a detailed document outlining the operating mechanism, asset backing, potential risks, and operational structure of the stablecoin.
Custody of liquid reserves: You must hold sufficient liquid reserves through trusted third-party custodians, ensuring that each stablecoin has 1:1 backing of actual assets.
Regular reporting of reserve status: Transparency reports need to be published regularly so that users and regulators can clearly understand the asset backing of the stablecoin.
Digital Token Identifier (DTI): A DTI is the 'digital passport' of a stablecoin and must be clearly stated in the white paper to provide information about the ledger where the token resides, helping regulators track related responsibilities.
The Role of Digital Token Identifiers (DTI)
DTI is a unique number specifically used to identify digital tokens, established by the International Organization for Standardization (ISO) according to the ISO 24165 standard. It assigns a unique and permanent identifier to each digital asset.
Similar to how traditional securities use International Securities Identification Numbers (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 each digital asset can be uniquely identified.
The DTI system is managed by the Digital Token Identifier Foundation (DTIF), with the primary goal of enhancing market transparency, supporting compliance requirements, and strengthening 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: Helping businesses and regulators better monitor asset risks.
Optimize reporting processes: Streamline the generation and submission of compliance reports.
More reliable market data: Provide 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 verification: Conducted by DTIF on the technical foundation of the token.
Allocate DTI: After verification, your stablecoin will receive a unique DTI number.
Detailed application procedures can refer to the official MiCA guidelines and the DTI quick guide.
Is Tether (USDT) compliant with MiCA?
Under MiCA regulation, if stablecoins (like USDT) are classified as Electronic Money Tokens (EMT), 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 USDT's legal status in the EU.
There are differing opinions in the market regarding the uncertainty of USDT's compliance. Some believe USDT may face restrictions, while others think it may continue to operate during the transition period stipulated by MiCA.
Juan Ignacio Ibañez, a member of the MiCA Crypto Alliance Technical Committee, stated in an interview with Cointelegraph: 'Although no regulatory body has explicitly stated that USDT is non-compliant, it does not mean that it is compliant.'
He further pointed out that Coinbase's decision to delist USDT can be seen as a cautious strategy, but there is currently no clear regulatory directive requiring other exchanges such as Binance or Crypto.com to take similar action. He predicts that as MiCA regulations are fully implemented, the regulatory environment for stablecoins will become clearer, and other exchanges may also face similar delisting decisions.
Discussions on social media about USDT's status in the European market have attracted widespread attention. Some believe that while USDT has not been immediately banned, MiCA requires it to comply during the transition period. This means USDT may not necessarily exit the EU market entirely, but its liquidity and usage may be significantly affected by the implementation of MiCA.
There is a view that USDT may not be able to continue trading within 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 trading.
Nevertheless, uncertainty remains about whether USDT meets MiCA's compliance requirements. Currently, relevant regulatory authorities have not clearly stated whether USDT meets MiCA or other legal requirements. Any statements about its compliance or potential ban lack solid evidence until an official announcement is made.
Did you know: Tether CEO Paolo Ardoino revealed at the Swiss PlanB event 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 usable on DEX after December 30?
Decentralized exchanges (DEX) themselves may not be directly affected by MiCA due to their decentralized nature. However, EU users still need to comply with new regulatory requirements. This means users need to verify whether USDT meets MiCA's compliance standards. 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 typically involves maintaining transparency, implementing strict Anti-Money Laundering (AML) practices, and ensuring appropriate Know Your Customer (KYC) procedures. Additionally, compliant stablecoins must have verifiable reserve backing and undergo regular audits, helping to foster trust within the market.
Here are some stablecoins that meet MiCA requirements:
EURI: Issued by Banking Circle, registered in Luxembourg, listed as a Credit Institution (CI), DTI number LGPZM7PJ9, supporting Ethereum and BNB Smart Chain.
EURe: Issued by Monerium, registered as an Electronic Money Institution (EMI) by the Central Bank of Iceland, supporting 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, no DTI information was provided in its white paper.
EURCV: SG Forge's CoinVertible registered as EMI in France, based on the Ethereum network, DTI number 9W5C49FJV.
EURD: Issued by Quantoz Payments, registered in the Netherlands, DTI number 3R9LGFRFP, based on the Algorand blockchain.
EUROe and eUSD: Issued by Membrane Finance Oy, registered in Finland, supporting multiple blockchain networks such as Concordium, Solana, Arbitrum, Avalanche, Ethereum, Optimism, and Polygon.
EURQ and USDQ: Launched by Quantoz Payments and supported by Tether, Kraken, and Fabric Ventures. These stablecoins are fully backed by legal reserves and obtained an electronic money token license from the Dutch Central Bank (DNB).
EURØP: A euro-backed stablecoin issued by Schuman Financial, fully supported by cash and cash equivalents. EURØP has obtained an electronic money token license from the French Prudential Supervision and Resolution Authority through its subsidiary Salvus SAS, 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 Stablecoins in the EU
The implementation of MiCA will reshape the EU's cryptocurrency market through strict compliance standards and the prohibition of algorithmic stablecoins.
While this poses challenges for established stablecoins like USDT, it also provides more opportunities for compliant euro-denominated stablecoins to develop. The EU is setting a regulatory example for the global cryptocurrency market, which other regions may follow, promoting a more unified and secure global market.
