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 role in TradFi—accounting for 20-30% of global foreign exchange reserves, SWIFT transactions, and trade flows—it represents less than 0.5% of the global stablecoin circulation.
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 lagging in stablecoins
Hansen attributes the differences between on-chain euros and dollars to several factors:
1. Dollar-dominated liquidity: 'The network effects surrounding dollar stablecoins are something euro stablecoins cannot catch up to. European users interacting with the global cryptocurrency market will opt for the cheapest and most liquid currency.'
2. Historical negative interest rates: 'For a long time, negative interest rates in the eurozone have called into question the business model of stablecoins.'
3. Regulatory uncertainty: Before 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 bill's enactment has sparked institutional interest, with major European banks and other participants exploring or launching euro stablecoin products. He emphasized that Circle launched EURC under MiCA's conditions, with its reserves fully managed by a French-regulated entity, and noted, 'We have seen the supply of EURC grow by 60-70%, thanks to launches on multiple blockchains.'
MiCA requires that the reserves held by stablecoin issuers be proportional to the tokens in circulation in the EU. Hansen explained that Circle uses a 'dynamic rebalancing' model to comply with the 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 drivers: regulated crypto capital markets and the practical applications of stablecoins.
'Only stablecoins authorized under EU rules will eventually be used as trading pairs in regulated crypto markets,' Hansen stated. 'I would not be surprised by significant growth in this area.'
This change has prompted cryptocurrency exchanges to delist USDT from trading pairs for EU customers.
Hansen stated 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 meet emerging challenges. He also warned 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 promoting innovation with protecting consumers and creating a competitive local market.
As Hansen said, 'Only time (and the market) will tell if MiCA can achieve its goals.'