EU’s Restrictive Stablecoin Rules Take Effect Soon and Issuers Are Running Out of Time

As a researcher with experience in the crypto industry, I believe that the new European Union (EU) regulations on stablecoins, as outlined in the Markets in Crypto Assets (MiCA) legislation, will significantly impact major stablecoin issuers like Tether and Circle. The rules, which take effect on June 30, require these companies to obtain appropriate authorization to operate within the EU and face strict limits on daily transactions and values.

As a researcher studying the regulatory landscape of digital currencies in Europe, I can share that major stablecoin issuers like Tether and Circle are expected to face increased scrutiny and potential regulation within the European Union. This means they will likely operate under stricter guidelines and could be subjected to more stringent oversight.

Starting from June 30, companies operating in the European Union’s 27-member trading bloc must obtain necessary approvals to function. Additionally, they will be subjected to stringent transaction volume and value thresholds as outlined in the Markets in Crypto Assets (MiCA) regulation.

As a researcher, I’ve come across some regulations that could potentially impact the operations of major stablecoin issuers within the European Union (EU). Notably, Tether, whose USDT is currently the largest dollar-pegged stablecoin by market capitalization, and Circle, responsible for USDC, the second-ranked one, may face challenges in continuing their business within this region. The specifics of these regulations have been outlined by Robert Kopitsch, the secretary-general of Blockchain for Europe.

At Consensus 2024 in Austin, Kopitsch stated that for non-EU stablecoins denominated in euros and exceeding a certain threshold, the issuance and use must be halted. However, this poses a challenge since approximately 99% of the stablecoin market operates with USD.

Caps

The European Union’s MiCA regulation represents a comprehensive set of guidelines for the crypto sector, which was passed as law last year. Firms authorized in any EU member state can now conduct business across the entire European economic area.

Under Article 23 of the law, companies are required to cease issuing asset-referenced stablecoins if they facilitate over 1 million daily transactions or have a daily value exceeding 200 million euros ($215 million). These regulations will be enforced starting from the end of this month, with other related provisions set to take effect in December.

Mark Foster, the EU policy representative at the Crypto Council for Innovation, stated that stringent regulations were put in place to hinder the use of stablecoins, such as Facebook’s abandoned project Diem (previously known as Libra), from overshadowing the euro.

The EBA justifies the use of capital requirements by explaining that they serve to protect our monetary system.

In a 2022 letter, Blockchain for Europe and the Digital Euro Association, two influential think tanks, voiced their opposition to certain measures. They argued that these regulations would effectively prohibit large stablecoin issuers from operating within the European Union.

An EBA representative informed CoinDesk that the regulations do not prohibit businesses from releasing stablecoins backed by assets other than the euro. The crucial factor is their function: if they’re used as a medium of exchange for purchasing goods or services, then the particular limits are applicable.

According to Jón Egilsson, co-founder of Monerium, issuers are free to serve Europeans unrestrictedly when the tokens aren’t used as a medium for exchange. This encompasses transactions between different currency zones, peer-to-peer transfers, and instances where cryptocurrency is swapped for an e-money token.

The European Banking Authority (EBA) has not yet specified exactly how it plans to calculate these figures, but a consultation paper indicates that deals involving parties situated outside of the EU may be disregarded. Transactions, however, that involve at least one participant within the EU will likely be taken into consideration.

Based on the advice I’ve received, a transaction refers to the transfer of digital assets or value both on the blockchain and off it. Moves between the same individual’s addresses or accounts are not considered transactions.

By the end of this month, a representative shared with CoinDesk that the European Banking Authority (EBA) will issue its concluding assessment regarding the measurement of transactions.

Companies that have been forced to halt new emissions will need to present a viable plan demonstrating their ability to adhere to the established limits before being allowed to resume operations. This may prove challenging: The daily trading volume for USDT is approximately $27 billion, as indicated by CoinGecko data, while USDC has a trading volume of around $5 billion.

Another barrier is obtaining the necessary certification.

If you aim to become a stablecoin issuer at the European level, obtaining either an e-money institution license or a banking license is mandatory. This regulatory hurdle comes with substantial costs and a lengthy application process.

Circle and Tether are trying

Tether, Circle, and other digital asset issuers have a tight deadline of only three days left to obtain an e-money license in order to continue their operations lawfully.

A representative from the firm that was conditionally approved as a Digital Asset Service Provider by the French Financial Markets Authority in April, stated their intention to obtain an e-money license before the set deadline.

As a crypto investor, I can tell you that Circle is dedicated to adhering to the European Union’s Markets in Crypto-Assets (MiCA) regulations. To achieve this, we will be bringing Euro Circle (EURC) tokens into the EU and issuing them from Circle France in a MiCA-compliant way. Furthermore, we plan to issue US Dollar Coin (USDC) for our European customers from the same entity, in line with MiCA regulations and pending regulatory approval.

EURC represents the stablecoin issued by the company, backed by the Euro. The equivalent of Tether’s EURT is this stablecoin. Notably, crypto exchange Bitstamp recently removed Tether from its listings due to MiCA regulations. Similarly, in March, OKX announced it would no longer support USDT, stating a preference for providing euro-based liquidity within the region.

According to a statement from Paolo Ardoino, Tether’s CEO, the company has had extensive discussions with European exchange partners regarding the regulations, particularly those affecting the listing of USDT and other Tether tokens, as well as the interpretation of important regulatory provisions. Tether is hopeful about MiCA’s implementation but emphasizes the importance of balanced stablecoin regulatory policies that prioritize consumer protection and foster growth within our emerging industry.

As aanalyst, I would say that the direction the industry takes will be influenced significantly by the European Commission and the commissioners they appoint from the newly elected European Parliament.

Kopitsch expressed that there is increasing awareness of the requirement for a resolution as we ponder what comes next in the context of the strict regulations governing stablecoins.