Expected changes, and at the same time unknown, come to the European Union (EU) stablecoin market starting this July with the entry into force of the rules for the Cryptoasset Market (MiCA). The new requirements for the issuers of these currencies and for the platforms that market them suggest a prompt reconfiguration of the market with varied effects which—for some—can be negative and for others they are still an uncertainty. All this in a context in which regulators defend the regulations approved in 2023, pointing to the harmonization of the rules in the EU States and the “defense of financial stability” of the region as their main argument. Based on what most analysts have pointed out so far, there are three key elements that help understand How the European stablecoin market will change with MiCA.
Stablecoin issuers will operate with registration or exit the market
Identified as issuing institutions of electronic money tokens (EMT) or commodity-backed tokens (ART), with MiCA stablecoin issuers are required to request authorization before the supervisory bodies of any of the EU member countries. The rules dictate that these issuers must create a “white paper” approved by regulators, also requiring that the reserve assets, which back the stablecoins, and which guarantee their parity, are “safe” and deposited in various banks. It is also required that 2% of these reserves come from the company's own assets. The regulations also ask stablecoin issuers, which operate within the EU, to establish a legal entity and comply with transparency and consumer protection requirements. This is a series of requirements that will completely change the map of stablecoin companies of Europe, imposing restrictions on the emergence of new issuers, and putting those that are already circulating in a dilemma: either they become companies obliged to comply with the Regulation or leave the market. This is because failing to obtain the proper license to offer electronic money exposes issuers to legal consequences, including fines and possible criminal charges. It is expected that many issuing companies cannot meet all these requirements. As Tether CEO Paolo Ardoino recently stated, “the main problem is that the regulation foresees enormous risk for issuers of stable currencies, since they must maintain 60% of the reserves in bank deposits. Ardoino announced thus the departure of USDT from Europe, the largest dollar stablecoin on the market. He added that just as the demands are difficult to meet for Tether, they will also be difficult for many others. It already happened with a small company issuing stablecoins in euros, Lugh, that due to the impossibility of complying with MiCA, EURL issuance ceased. So far, there is no information on the regulatory status of other stablecoin issuing companies, except USDC, which already has a license from the French authorities. What is expected is that many will soon be out of the regulated market and, therefore, they will face some difficulties. “Not only could the rules make the job of a stablecoin issuer extremely complex, but they could also make EU-licensed stablecoins extremely vulnerable and riskier to operate,” Ardoino concluded.
There will be many limitations for stablecoins pegged to the dollar
Although many believe that MiCa could mean a renaissance of European stablecoins, it also draws attention to the obstacles that may arise for the mobilization of important capital in the region, hindering the freedom of business negotiation and the circulation of capital. With the new rules, stablecoin operators in Europe will have to comply to a maximum of one million daily operations. Those that are not referenced to the euro or currencies present in the member states They will have a limit of 200 million euros per day.
Dollar-pegged stablecoins are used much more frequently than their euro-pegged counterparts. Source: Kaiko Research With this requirement Problems loom over dollar-referenced stablecoins, which accumulate a market capitalization of 160 billion dollars, compared to the 281 million dollars added up by the stable currencies anchored to the euro. Only USDT, the absolute market leader, exceeds USD 100 billion in capitalization. This is another limitation for the currency issued by Tether prompting its exit from the EU. It is also important for other currencies anchored to the dollar to aspire to reach the magnitude that USDT reaches. A restriction that also applies, to a lesser extent, with the stablecoins referring to the euro. The standard could benefit the expansion of euro stablecoins, since the companies that issue these assets already comply with several of the required requirements. For this reason, it is thought that these coins will achieve greater growth (although they will have a hard time filling the USDT gap). Hence, MiCA is interpreted as a regulatory framework that offers regulatory advantages to euro stablecoins. A fact that some they understand as a clear case of «market protectionism«.
Europe changes the way stablecoins are marketed: two markets emerge
MiCA also forces centralized cryptocurrency exchanges to operate only with regulated stablecoins in order to avoid sanctions, which can involve 12.5% of the total annual turnover. For a stablecoin to be considered regulated, it must be issued by an institution that has been authorized, after compliance with the series of requirements set out above. Exchanges have to request the explicit permission of the currency issuers.
One billion euros add up to the fines for not complying with MiCA. Source: Under this premise, there are already several cryptocurrency platforms that They have been announcing the compliance measures that they will implement. Registered exchanges will be forced to adapt their service offering, which could lead to major changes in the way European users access and use these cryptocurrencies. Even so, a few days before the regulation comes into force, announcements from many platforms are still pending. It is known, so far, that OKX and Uphold chose to remove USDT from their list of exchange pairs. And while Kraken plans to settle dollar stablecoins in euros, Binance establishes guidelines for regulated and unregulated stablecoins. A classification that predicts a kind of bifurcation of the market. In this way, two stablecoin markets begin to take shape as a consequence of regulatory arbitrage: one in which regulated stablecoins are marketed on centralized platforms (meeting the requirements of MiCA), and another parallel, and possibly decentralized, one in which unregulated currencies will be marketed, but that are of interest to market members. The stablecoins referring to the dollar are probably the first that will attract the attention of that niche that will continue to operate with currencies such as USDT, as a way to continue operating with cryptocurrencies and other currencies in the market.