From the beginning of July, cryptocurrency exchanges and stablecoin issuers in the European Union will operate in accordance with the rules set out in MiCA.
The entry into force of the Markets in Cryptoassets Act (MiCA) on June 30 means big changes for the EU cryptocurrency industry. Among the key provisions of MiCA are the regulation of stablecoins, as well as rules for a wide range of crypto assets and exchange platforms.
What does Mika say?
MiCA is a regulatory framework that uniformly clarifies and regulates the cryptocurrency market. It defines the classification of digital assets and defines laws and areas of responsibility for their implementation.
Last April, members of the European Parliament voted in favor of the MiCA cryptocurrency regulation bill. The European Union has become one of the first jurisdictions in the world to introduce comprehensive regulations on crypto assets.
Firms will have to provide full disclosure to customers, present a public business model, establish an effective governance system, including risk management, register with the European Banking Authority, establish a buyback mechanism, and have adequate reserves.
Additionally, issuers of asset-linked tokens (ART) and electronic money tokens (EMT) must disclose sustainability information as of June 30, and crypto service providers must begin requiring disclosure requirements by the end of the year.
ART issuers (other than credit institutions) can continue to operate if tokens are issued before June 30, until they are granted or denied a license under MiCA, provided they apply for a license by July 30.
Entities that do not comply with MiCA may be subject to financial penalties and may be banned from operating in the EU.
What restrictions do crypto companies impose?
As a result of the implementation of MiCA legislation in the European Union, some crypto companies have started to restrict the use of stablecoins.
In March, OKX suspended trading of the largest stablecoin, Tether (USDT), for users based 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 may involve unregulated stablecoins. Copy trading and participation in Launchpad and Launchpool will be completely unavailable to European exchange clients.
Cryptocurrency exchange Bitstamp said it will delist EURT, the euro-pegged stablecoin Tether, and other stablecoins that do not comply with new EU crypto asset laws by June 30.
Also, European company Lugh announced that it will stop issuing the EURL stablecoin before the MiCA regulation comes into effect.
Stablecoin Market Status
According to CoinGecko, the EURT stablecoin has rapidly lost popularity in the European crypto community throughout 2023. By October last year, the crypto asset’s market cap had fallen nearly tenfold compared to its peak in 2022 — from $231 million to $32 million.
EURT is the second largest stablecoin pegged to the euro in terms of market cap. Compared to USDT of the same Tether, the volume of EURT in circulation is small – only 32.1 million coins as of June 26.
According to a report by analytics firm Kaiko, stablecoins backed by euro reserves represent just 1.1% of the total fiat-backed stablecoin trading volume.
The study also shows that most (90%) stablecoin transactions are in assets backed by the US dollar. Only 10% of stablecoins are backed by reserves of other currencies and real assets, including gold.
The weekly trading volume of dollar-denominated stablecoins like USDT exceeds $270 billion. Meanwhile, the total trading volume of euro-denominated stablecoins EURT, EURS, EURCV, AEUR and the like is only around $40 million per week. However, analysts expect growth in this sector as European regulators pressure exchanges to withdraw dollar assets from trading.
What the experts say
Analyst MartyParty generally expects an explosion of stablecoins after the MiCA implementation. He believes that EU banks, institutions, and stablecoin issuers will start minting trillions of euro-backed stablecoins in July.
Alexander Ray, CEO and co-founder of Albus Protocol, points out that the new regulations will require all institutions involved in trading using asset-linked tokens to implement several regulatory measures, such as KYC and AML protocols.
He added that the implementation of KYC and AML protocols will definitely increase the operating costs of crypto companies, and in the end users will pay for it.
By adopting MiCA, Europe is helping to set the standard for strengthening international standards in terms of rules and regulations related to combating money laundering and terrorist financing, added Sven Muhle, Managing Director of BitGo Europe GmbH. However, users are unlikely to see fully uniform international rules across the board.