The "Markets in Crypto Assets" regulation will be enforced across Europe from June 30, 2024. For me, this new rule reconceptualizes the way we have dealt with stablecoins, and I find myself on the fence about it. First, at its core, regulation is central to the growth and safety of the crypto market. On the other hand, some aspects of MiCA might hold Europe back instead of pushing it forward.
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MiCA is the first all-encompassing law looking to regulate the crypto sector within the EU. It covers many aspects, among others: consumer protection, anti-money laundering measures, the environment, and corporate social responsibility. That may sound great on paper, but it isn't that simple in reality—especially for stablecoins.
This class of cryptocurrency is pegged to the value of one or another fiat currency or some other mix of assets. MiCA distinguishes between two types of stablecoins: e-money tokens and asset-referenced tokens. What this means is that e-money tokens are, for example, those aiming to provide pari passu value about a single currency. In contrast, asset-referenced tokens may be backed by several underlying assets or currencies. It matters because most of the popular stablecoins, including Tether's USDT, fall under the more rigid EMT rules in MiCA.
This is probably one of the most significant changes that MiCA will introduce: it will oblige stablecoins to obtain an electronic money license and establish supervision by the EBA. There will also be a cap on daily trading volumes for such tokens at 200 million euros—quite a restraint, judging by current trading volumes for significant stablecoins. For many established stablecoins, this will not be easy to meet; therefore, they could be banned in Europe.
It shows that MiCA is targeting getting more euro-pegged stablecoins. Based on a study by Kaiko, this would boost local e-money tokens that currently have trading volumes significantly lower than their USD-pegged peers. Resultantly, Société Générale has already introduced its stablecoin, known as EURCV, and may be watching a few Euro-denominated stablecoin token releases shortly.
While this may be a good move to support local currencies, I fear the probable negative implications of banning popular stablecoins like USDT. These stablecoins are important for crypto markets' liquidity. Most European traders rely on USDT for T2C, and removing it may affect the whole market outlook. It may turn things terrible for new users wanting to get into the crypto space and, therefore, reduce the growth of the entire market.
Some major crypto exchanges are already preparing for MiCA by reconciling their offerings. For instance, Binance has begun distinguishing between regulated and non-authorized stablecoins but did not mention which coins this change will affect. OKX began delisting USDT, while Kraken hinted that they might follow the lead. These changes might shift traders toward alternative options like USDC, which might remain valid according to MiCA stipulations.
What I am concerned about in the MiCA is that, under the new law, at least 60% of stablecoin reserves should come from bank deposits. It can be illustrated in this respect: currently, Tether holds a diversified pool of assets used to back its coin—like cash, Treasury bonds, and precious metals, including Bitcoin. Having made them disproportionately dependent on bank deposits raises the risk of custodian banks' failures, thereby resulting in substantial financial losses.
There are, however, several positive indicators on the other side. The regulation has already boosted venture capital investments in crypto projects based in Europe. As Dante Disparte from Circle explained, due to the more favorable regulatory environment, VC investments in Europe surged from 5.9 percent of the total in 2022 to 47.6 percent in 2023. This should, therefore, generate more innovation and development in the European crypto space.
Posted Using InLeo Alpha