The European Union’s landmark crypto regulation, the Markets in Crypto Assets (MiCA) framework, came into force on December 30, 2024. It promises to streamline the sector across all 27 member states. MiCA introduces a unified regulatory approach to replace the fragmented national laws that previously governed the sector.
The goals include improving transparency, reducing risks for investors and promoting innovation in a sector often marred by scams and market instability. Under MiCA, crypto token issuers must adhere to strict disclosure standards. Exchanges and wallet providers are required to register with the European Banking Authority.
Stablecoins, particularly e-money and asset-referenced tokens, are subject to rigorous scrutiny, including reserve requirements and sustainability disclosures. However, regulation has posed significant challenges. High compliance costs and operational overhauls could force small businesses to relocate to less stringent jurisdictions like the UAE or the UK.
Experts believe that MiCA offers long-term benefits, including clarity and stability for the crypto industry. But they warn that its strict requirements could stifle startup innovation. The success of the regulation will depend on consistent application across the EU.
It will also depend on its ability to balance monitoring and promoting growth. As Europe moves within this new framework, it signals a global shift, with the United States also taking steps to establish itself as a leader in crypto under its new administration. JPMorgan analysts, led by Nikolaos Panigirtzoglou, highlighted that under MiCA, only compliant stablecoins are allowed to be used as trading pairs on regulated markets within the EU.
The impact of MiCA on stablecoins
This regulatory change encourages European exchanges to modify their offerings, favoring compliant stablecoins, denominated in euros, such as Circle’s EURC. In contrast, non-compliant stablecoins, such as Tether’s EURT, have faced significant challenges.
The new rules require stablecoin issuers like Tether to maintain substantial reserves in European banks and obtain the necessary licenses for trading. Therefore, Tether announced the discontinuation of its stablecoin EURT, leading to its removal from various EU-based exchanges. Despite these regulatory hurdles, Tether continues to be a dominant force in the global stablecoin market, particularly in Asian markets where restrictions are less strict.
The company’s investment in MiCA-compliant stablecoin issuers demonstrates its commitment to maintaining a presence in the EU. Even seen in a sympathetic light, MiCA’s stablecoin component has confused industry commentators. Some aspects of the regulation, such as requiring stablecoin issuers to maintain fiat reserves, have been largely well-received.
Others, such as arbitrary volume limits, have generated much thought. MiCA introduces limits on the total value of stablecoin transactions over a specific period. These caps, managed by ESMA (European Securities and Markets Authority), aim to prevent stablecoins from becoming a dominant payment method that could potentially compete with traditional currencies or disrupt local economies.
For exchanges, wallet providers, and other crypto companies operating in the EU, determining which stablecoins are considered MiCA compliant is no easy feat. They must consider factors such as volume caps and reserve requirements. As the final form of MiCA rolls out in 2025, it will reshape the EU crypto landscape, challenging issuers to adapt to a new regulatory reality.
For better or worse, MiCA marks the start of a new era in crypto – one where stablecoins, like all financial assets, must adhere to higher standards of accountability.
