Stablecoin Regime in the EU: MiCA Enters Into Force

“Stablecoins Regime”, the section regarding stablecoins of the wider EU crypto regulation, entered into force in the EU today. The full regulatory framework will become applicable by the end of this year.

Passed by the EU Parliament in April 2023, the Market in Crypto Assets (MiCA) law is a major attempt by EU lawmakers to provide regulatory clarity to the novel industry. The largest share of the MiCA text is devoted to stablecoins. Another clear testament to the importance of this use case of crypto assets.

Interestingly however, the term ‘stablecoin’ is not used in the new law. Instead, the lawmakers have proposed two new definitions and two options for the issuers: asset-referenced tokens (ARTs) and e-money tokens (EMTs).

In MiCA, EMTs are made equal to regular e-money, which is the licensed activity for services such as prepaid cards, Apple and Google Pay, PayPal, and other wallets. From the perspective of money technology (moneytech), this is a dead end. The requirements of EU Payment Servies Directives are applied to EMTs leaving little space for innovation and competition for ‘ledger’ guys.

The motivation and ‘fears’ of lawmakers are visible in the key criteria for distinguishing between EMTs and ARTs. Only EMTs can be used widely as a “means of exchange.“ Further, only EUR-pegged EMTs are allowed for that purpose. Everything else is either capped at prohibitively low levels or allowed for other use cases.

Crypto exchanges were the first to react to the new rules. Several exchanges have cautiously removed the USDT and USDC pairs for the EU users. Observers suggest one of the short-term effects expected is an increase of EUR-denominated liquidity on the crypto exchanges.

The major stablecoin issuers have not yet announced their plans for addressing the issue. Circle obtained a Digital Asset Service Provider registration with the French Financial Markets Authority in April and plans to get an e-money license.

Tether's CEO, Paolo Ardoino, has disclosed only that the company was “engaged extensively with its exchange counterparties in Europe regarding the requirements … and the interpretation of key regulatory provision."

Certainly, much will depend also on the implementation of the rules, such as the method for counting the transactions against the cap. The clear guidelines are yet to be published by the authorized body – the European Banking Authority.