From the beginning of July, crypto exchanges and stablecoin issuers in the EU will operate according to the rules provided by the MiCA law.
The entry into force of the Markets in Crypto Assets Act (MiCA) on June 30 means significant changes for the cryptocurrency industry in the EU. One of MiCA’s key provisions is the regulation of stablecoins, as well as rules for a wide range of crypto-assets and exchange platforms.
What MiCA says
MiCA is a regulatory framework that clarifies and uniformly regulates the cryptocurrency market. It defines digital asset classification and specifies laws and areas of responsibility for its implementation.
Last April, members of the European Parliament voted in favor of the cryptocurrency regulation bill, MiCA. The EU has become one of the first jurisdictions in the world to introduce comprehensive regulations on crypto-assets.
Companies will have to provide full disclosure to clients, offer a public business model, establish an effective governance system including risk management, register with the European Banking Authority (EBA), establish a repurchase mechanism and have sufficient reserves.
In addition, issuers of asset-related tokens (ART) and electronic money tokens (EMT) must disclose sustainability information starting June 30, and crypto service providers must begin asking for disclosure requirements by the end of the year.
ART issuers (except credit institutions) can continue to operate if tokens were issued before 30 June, until they are granted or denied authorization under the MiCA, provided they apply for authorization by 30 July.
Entities that do not comply with MiCA can be fined and banned from operating in the European Union.
What restrictions have crypto companies put in place?
Due to the introduction of MiCA legislation in the EU, some crypto firms have started to restrict the use of stablecoins.
In March, OKX suspended trading of the largest stablecoin, Tether (USDT), for users in the European Union.
In early June, the Binance exchange announced that it would limit access to unregulated stablecoins for customers from the European Union. Binance will also limit the number of services that can involve unregulated stablecoins. The copy trading service and participation in the Launchpad and Launchpool programs will be completely unavailable to European exchange customers.
Crypto exchange Bitstamp said it will delist the EURT, the euro-pegged Tether’s stablecoin, and other stablecoins that do not comply with the new EU cryptocurrency laws by June 30.
The European company Lugh also announced that it would stop issuing its EURL stablecoin before the MiCA regulation took effect.
State of the Stablecoin Market
According to CoinGecko, during 2023 the stablecoin EURT rapidly lost its popularity in the European crypto community. By October of last year, the crypto-asset’s capitalization had fallen almost tenfold compared to its peak in 2022—from $231 million to $32 million.
EURT is the second largest stablecoin pegged to the euro by capitalization. Compared to USDT of the same Tether, EURT’s volume in circulation is small – only 32.1 million coins as of June 26.
According to a report from the analysis firm Kaiko, stablecoins backed by euro reserves make up just 1.1% of the total trading volume of stablecoins backed by fiat currencies.
The study also shows that most (90%) of stablecoin transactions are in US dollar-backed assets. Only 10% of stablecoins are backed by reserves in other currencies and real assets, including gold.
The weekly trading volume of dollar stablecoins such as USDT exceeds $270 billion. Meanwhile, the total turnover of euro stable coins EURT, EURS, EURCV, AEUR and the like is only about $40 million per week. However, analysts expect growth in this segment as European regulators pressure the exchanges to withdraw dollar assets from circulation.
What the experts say
Analyst MartyParty generally expects an explosion of stablecoins after the implementation of MiCA. He believes that European Union banks, institutions and stablecoin issuers will start minting trillions of euro-backed stablecoins in July.
Alexander Ray, CEO and co-founder of Albus Protocol, notes that new regulations require all organizations involved in business transactions using asset-linked tokens to implement many regulatory measures, such as KYC and AML protocols.
He said that the implementation of KYC and AML protocols will definitely increase crypto companies’ operating costs, and users will end up paying for it.
Sven Mohle, managing director of BitGo Europe GmbH, added that with the adoption of MiCA, Europe is helping to set the benchmark for promoting international standards regarding rules and regulations related to combating money laundering and the financing of terrorism. However, users are unlikely to see fully standardized international rules across the board.
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