In a letter to the Council of the European Union, two European associations are concerned about the restrictions of the European Union vis-à-vis stablecoins.
The cryptocurrency industry has not said its last word on the proposed regulations of the sector by Europe.
In a letter to the Council of the European Union, the associations Blockchain for Europe and the Digital Euro Association expressed their concerns about the survival of dollar-backed stablecoins on the European continent after the entry into force of the MiCa regulation.
As a reminder, a stablecoin (or stable cryptocurrency) is a crypto-asset (or digital asset) that is pegged to a fiduciary currency such as the euro or the dollar. A stablecoin can also be backed by other assets (such as gold). This is called the underlying of the stablecoin.
“Risk of being banned in the EU from 2024”
Blockchain For Europe shared the letter on Twitter this Friday:
“The three largest stablecoins by trading volume are at risk of being banned in the EU from 2024, due to quantitative limits on the issuance and use of EMTs (electronic money tokens) denominated in foreign currencies within the framework of MiCA”, write the associations.
The letter refers to Tether’s usdt, Circle’s usdc, and Binance’s busd which account for “nearly 75%” of stablecoin trading volumes today. The Mica regulation proposes a daily exchange cap for stablecoins, at 200 million euros and 1,000,000 transactions. However, for comparison, according to the site Coinmarketcap, the daily trading volume of the usdt reached more than 52 billion dollars. This volume is 5 billion dollars traded for the usdc and just under 5 billion for the busd.
“A flight of activities outside the EU”
Such restrictions on stablecoin exchanges could impact the market with “potentially destabilizing effects and significant leakage of cryptocurrency activity outside of the EU,” the letter points out.
As a reminder, at the beginning of July, the European Parliament and the Council reached a provisional agreement on the MiCa regulation (see our article on this subject). However, the crypto-crashes of May and June showed the weaknesses of certain stablecoins, in particular the stablecoin terra usd (ust) of the Terra blockchain.
The Mica regulation thus wished to go further in the framework of stablecoins, obliging the issuers of stablecoins to “constitute a sufficiently liquid reserve, with a ratio of 1/1 and partly in the form of deposits”.
“Each holder of so-called ‘stablecoins’ will be able to be redeemed at any time and free of charge by the issuer, and the rules governing the operation of the reserves will also provide for an adequate minimum liquidity”, underlines the press release.
Similarly, and while the American company Circle released its European stablecoin, EuroCoin, the MiCa regulation intends to limit the issuance of certain stablecoins on European territory.
“The development of non-EU currency-based asset pool stablecoins (ARTs) used as a means of payment will be restricted to preserve our monetary sovereignty. public of ARTs, issuers of this type of token will have to have a seat within the EU”.
Consider another definition of stablecoins
While the MiCa text is still the subject of negotiations in Brussels with a view to its entry into force in 2024, the two associations have called on the Council of the EU to reflect on another definition of stablecoins.
They suggest in particular that the concept used to define stablecoins, in particular the mention of “means of exchange” be “clarified, or interpreted in such a way as to recognize the role of stablecoins in exchanges and in decentralized finance” (DeFi).
“The objective would be to clarify that the restrictions on the issuance and use of EMTs as a medium of exchange exclude entry and exit transactions of unbacked crypto-assets using stablecoins, in particular in the exchanges and in DeFi pools,” the letter states.