In a letter to the Council of the European Union, two European associations are concerned about the European Union’s restrictions on stablecoins.
The cryptocurrency industry has not yet said the last word on Europe’s proposed regulation of the sector.
In a letter to the Council of the European Union, the associations Blockchain for Europe and the Digital Euro Association expressed 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) linked 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 value of the stablecoin.
“Risk of a ban in the EU from 2024”
Blockchain For Europe shared the letter on Twitter on Friday:
“The three largest stablecoins in terms of 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 under MiCA,” the associations write.
The letter refers to Tether’s usdt, Circle’s usdc and Binance’s busd, which represent “nearly 75%” of stablecoin trading volumes today. The Mica Regulation proposes a daily trading limit for stablecoins, at 200 million euros and 1,000,000 transactions. By comparison, however, according to the Coinmarketcap site, the USDt’s daily trading volume reached more than $52 billion. This volume is traded at $5 billion 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 the EU,” the letter emphasizes.
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, most notably the Terra blockchain’s stablecoin terra usd (ust).
Thus, the Mica Regulation wanted to go further in the context of stablecoins and require stablecoin issuers to “establish a sufficient liquid reserve, with a ratio of 1/1 and partly in the form of deposits”.
“Any holder of so-called ‘stablecoins’ can be exchanged at any time and free of charge by the issuer, and the rules governing the operation of the reserves will also provide for a sufficient minimum liquidity,” the press release underlines.
Likewise, and while the American company Circle launched its European stablecoin, EuroCoin, the MiCa regulation aims to limit the issuance of certain stablecoins on European territory.
“The development of non-EU currency-based asset pool stablecoins (ARTs) used as means of payment will be restricted to preserve our monetary sovereignty. Audience of ARTs, issuers of this type of token will have to have a seat within the EU “.
Consider a different definition of stablecoins
While the MiCa text is still subject to 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 consider a different definition of stablecoins.
In particular, they propose that the concept used to define stablecoins, especially the mention of “means of exchange” “clarifies or be interpreted in such a way as to recognize the role of stablecoins in exchanges and in decentralized finance” (DeFi).
“The aim would be to clarify that the restrictions on the issuance and use of EMTs as a medium of exchange preclude entry and exit transactions of unsecured crypto assets using stablecoins, particularly in the exchanges and in DeFi pools,” states the letter.