With Binance's recent announcement about the upcoming MiCA rules implementation that will impact customers from the European Economic Area (EEA), many crypto users are naturally wondering what this will mean for stablecoins like Tether, USDC, DAI, and others.
According to EU legislators, the Markets in Crypto-Assets Regulation (MiCA) aims to ensure that legislative acts on financial services are fit for the digital age and support the use of innovative technologies, including distributed ledger technology (DLT) and blockchain.
When it comes specifically to stablecoins, the rules introduce a set of regulations aimed at companies offering stablecoins in the EEA. These rules, which we’ll discuss in more detail below, go into effect on June 30, 2024.
Key highlights:
MiCA aims to ensure financial services regulations support innovative technologies like DLT and blockchain, with new rules for stablecoin issuers effective June 30, 2024.
MiCA classifies stablecoins as either e-money tokens (EMTs) or asset-referenced tokens (ARTs), each with specific regulatory requirements for issuers.
Significant stablecoins, like Tether and USDC, face stricter oversight due to their large market impact, with higher capital and liquidity requirements.
While Circle's USDC appears more compliant with MiCA regulations, Tether and MakerDAO's DAI face uncertainties regarding their authorization to operate in the EEA post-MiCA implementation.
What requirements does MiCA introduce?
MiCA introduces a broad selection of requirements that stablecoins issuers will have to abide by if they want to service the EEA market. We’ve collected the most important and relevant information from the MiCA regulation to give you a quick rundown.
Stablecoin classifications
MiCA classifies stablecoins into two main types: e-money tokens (EMTs) and asset-referenced tokens (ARTs):
E-money tokens: These are crypto-assets that aim to stabilize their value by referencing a single official currency. They function similarly to electronic money. Fiat-backed stablecoins like Tether and USD Coin fall within this category.
Asset-referenced tokens: These stablecoins aim to stabilize their value by referencing multiple assets, such as a basket of currencies, commodities, or other crypto assets. Decentralized stablecoins or algorithmic stablecoins fall within this category.
Requirements for stablecoin issuers
Issuers must ensure the reserve assets are securely and adequately managed, segregated from the issuer's own assets, and not pledged as collateral. There are additional requirements for different types of stablecoins:
E-money tokens: Issuers must provide holders with a claim against the issuer at any time and at the same value as the currency referenced by the tokens. Issuers of e-money tokens must be authorized as credit institution or as an electronic money institution (EMI).
Asset-referenced tokens: Issuers must maintain a reserve of assets to back the value of the tokens. This reserve must cover market and currency risks. Issuers of asset-referenced tokens must obtain authorization from the relevant authority and have their white paper approved before offering tokens to the public.
Significant stablecoins
Stablecoins that meet certain criteria, such as having a large customer base, high market capitalization, or a large number of transactions, are deemed significant. While the regulation doesn’t specifically name which stablecoins are significant, we can assume that this part of the legislation is targeting stablecoins with a high market cap, like Tether and USD Coin.
Since significant stablecoins pose greater risks to financial stability and monetary policy, they are subject to more rigorous oversight. Issuers of significant stablecoins must abide by higher capital requirements, liquidity management policies, and interoperability requirements.
Here are some of the most important notes about significant stablecoins, as defined by MiCA:
The number of token holders is greater than 10 million.
The market cap is higher than €5 billion.
The average daily transactions number is higher than 2.5 million.
The average daily transaction volume is higher than €500 million.
Currently, only three stablecoins tick all the boxes: Tether, USD Coin, and Multi-Collateral DAI.
What does the MiCA regulation mean for major stablecoins?
At the moment, there’s not much information available on which stablecoin issuers have filed for a license in the EEA or what the authorities’ view on them is. However, we can gather a lot of information from comments made by executives at major stablecoin companies and from the actions taken by cryptocurrency exchanges regarding the MiCA regulation in recent months.
Tether
Tether (USDT) is by far the largest stablecoin in the sector, commanding a $112 billion market cap (out of the total stablecoin market cap of $157 billion). At the moment, it’s not exactly clear which exchanges will continue to support USDT after MiCA comes into effect at the end of June. It’s also not clear whether Tether has applied for the EMI license, which would give it the ability to operate in the EEA.
Speaking to The Block, one of the leading crypto news sites, Tether CEO Paolo Ardoino explained that they have been “actively involved in regulatory technical standards consultations over the past months” and are convinced that MiCA in its current form contains “several problematic requirements.” Ardoino did not clarify whether Tether has applied for an EMI license.
It’s worth noting that one of the top crypto exchanges, OKX, has already ceased supporting US dollar-denominated USDT spot pairs in Europe. However, according to the official announcement, the exchange still lists euro-denominated USDT pairs. Meanwhile, Kraken is holding internal discussions on whether to stop supporting USDT in EEA member states.
Given what is currently known, it’s not too far-fetched to assume that major exchanges could stop supporting USDT in some capacity by June 30. However, it’s worth reiterating that a lot can happen in the coming weeks, and we are not privy to discussions taking place between Tether, exchanges, and regulators behind closed doors, so we definitely can’t say what’s going to happen with a high degree of confidence.
USD Coin
USD Coin (USDC) is the second-largest stable digital currency in the market with a total valuation of $32.6 billion as of this writing. USDC is a stablecoin managed by Circle, a financial technology company. Circle partnered with Coinbase to create USDC. The collaboration resulted in the establishment of the Centre Consortium, which governs the issuance and redemption of USDC.
It wouldn’t be too far off to say that Circle is considered more transparent and prepared to work with regulators than Tether. As such, Circle has applied for an EMI license and is currently awaiting the result. It’s worth noting that Circle secured an Asset Service Provider license in France in December 2023, which could give it a leg up over when securing the EMI license. At the time, Circle CEO Jeremy Allaire hinted at that possibility, saying:
“The issuance of this conditional DASP registration in France marks a significant early milestone as we work toward establishing our European regulatory platform.”
The CEO also said that their goal is to bring their products and services into full compliance with the impending MiCA rules. One bit of information that could speak to USDC’s compliance, or rather, eventual and timely compliance with MiCA rules, is the fact that OKX didn’t cease supporting USDC pairs when they decided to limit USDT support back in March.
DAI
Multi-Collateral Dai (DAI) is a decentralized stablecoin that maintains its value and dollar peg by referencing several different assets, including Ethereum, USD Coin, and US treasuries. There’s little information available regarding how the EU legislators will handle DAI or whether Maker, the company that issues DAI, has made any effort toward complying with regulations.
According to the MiCA regulation, issuers of asset-referenced tokens (decentralized or algorithmic stablecoins) should have a registered office in the EU. In addition, issuers who want to offer stablecoins to the public must have their white paper approved and must be “authorized” by the “competent authority.”
Which stablecoins are currently regulated?
According to a report from CoinDesk, only three European companies are issuing fiat stablecoins under the EMI license. These “authorized” issuers are Monerium (with its stablecoin EURe), Membrane Finance (with its stablecoin EUROe), and Quantoz Payments (with its stablecoin EURD).
All of these stablecoins are very small, and it’s unreasonable to expect that they could shoulder the liquidity requirements of the entire stablecoin trading volume in the EEA.
The bottom line
Lately, we’ve seen a notable push from the regulators to introduce rules for stablecoins and cryptocurrencies. MiCA regulations pertaining to stable digital assets will go into effect by the end of June, while the remaining regulations will step into effect by the end of 2024.
The European Union is not the only entity that’s expedited its crypto regulation efforts. Last year, we saw US regulators renew their stance toward crypto securities and go after exchanges like Binance and Kraken. On the flip side, we also saw the regulators approve spot Bitcoin ETFs in the US, which speaks to their willingness to accept cryptocurrencies.
As for MiCA, it’s worth noting that many experts have already expressed their doubts about the EU’s enforcement capabilities. Currently, it’s unclear in what capacity the EU authorities will go after stablecoin issuers that don’t follow the new rules.
In addition, we also don’t know which stablecoins will be deemed unauthorized when the June 30 deadline comes around. At the moment, USD Coin issuer Circle seems likely to receive the EMI license, whereas USDT issuer Tether and DAI issuer MakerDAO seem less likely to obtain the license.
