User’s guide to the new EU stablecoins regulation

The MiCA regulation, effective July 1, 2024, has significantly changed the stablecoins regime in the EU. Here’s what crypto users need to know about this new reality.

Stablecoins are the lifeblood of the crypto market, consistently accounting for the highest trading volumes – up to 60%. The MiCA regulation ⚖️, which entered into force on July 1, 2024, has completely disrupted their regime in the European Union, and we must now take it into account.

Here’s what we need to know about this new reality – from a crypto user’s standpoint 👇

E-Money Tokens

➡️ Dollar-, euro-, or other fiat-pegged stablecoins are now defined as E-Money Tokens (EMT). Their issuers are required to hold a third of their reserves in the EU banks and comply with a number of investor-protection rules.

➡️ So far, only Circle, the issuer of USDC and EURC, has obtained the e-money license, which makes it the only global stablecoin currently available in the EU.

➡️ Tether, the giant that commands 59% of the stablecoin market, saw its USDT delisted from major custodial platforms, such as Bitstamp, Uphold, Binance (in sell-only mode)… Smaller stablecoins, including decentralized ones (DAI, FRAX), suffered the same fate.

Asset-Referenced Tokens

➡️ Stablecoins pegged to more than one currency – fiat or crypto – or physical assets like gold (PAX Gold) are now defined as Asset-Referenced Tokens (ART). ART issuers also need a license but with significantly less stringent requirements.

➡️ ARTs that reference EU currencies will have no limits on usage. ARTs pegged to non-EU currencies and other assets will see their limits capped at €200 million or 1 million transactions per day.

➡️ Issuers or service providers (CASPs) are banned from paying interests related to EMTs and ARTs. In theory, this means that DeFi yielding protocols or centralized lending services will have to shut out their European users. However, some lawyers see possibilities for the DeFi here, since MiCA does not specifically target it.

➡️ Regarding CASPs paying interest on stablecoins, we might have more clarity by December 30, 2024, when the MiCA regulation will become applicable to them as well.

The regulation is catching up to the crypto space, which presents both threats and opportunities. The stablecoins-related aspects of MiCA have been widely criticized for stifling innovation and favoring big financial companies at the expense of startups. Some even feared that only banks would be allowed to issue “real stablecoins”, i.e. EMTs. Circle made an impression by obtaining its EMT license, proving that such compliance is achievable.

The next big question is whether various European CASPs will be able to comply as well 🤞