In an exclusive article on crypto.news, Merkle Science Policy Director Natalia Latka discusses how MiCA regulations could impact USDT and other stablecoins in the EU.
OKX, one of the largest global cryptocurrency exchanges, recently delisted all USDT trading pairs to comply with the upcoming Markets in Crypto Assets Regulations (MiCA). This has led to considerable speculation about how other major exchanges will react as MiCA is set to come into effect in June.
MiCA introduces licenses for Crypto Asset Service Providers (CASPs), Asset Reference Token (ART) issuers and Electronic Money Token (EMT) issuers, as well as detailed regulatory obligations applicable to these entities, including consumer protection rules for issuance. do. , trading, exchange and storage of crypto assets.
MiCA also establishes a market abuse regime that prohibits market manipulation and insider trading and clarifies the powers, cooperation and sanctions mechanisms available to competent authorities. According to the regulations, cryptocurrency services can only be provided by authorized entities with offices in the EU. Major cryptocurrency service providers and major ARTs and EMTs are subject to additional scrutiny and regulatory requirements due to their potential impact on financial stability and consumer protection.
To understand this complex story in a somewhat simple way, crypto.news reached out to: Natalia LatkaHe is the Director of Policy at Merkle Science, a blockchain analytics company and leader in cryptocurrency compliance and financial crime.
Natalia Latka: Tethers are classified as EMT. As a result, they must adhere to the standards specified for EMT issuers within MiCA. EMT issuers must be approved as electronic money institutions or credit institutions.
This involves a comprehensive application process with the appropriate national authorities in the EU, where issuers must demonstrate operational efficiency, financial strength and compliance with the MiCAR regulatory framework. In the case of Tether, as an entity primarily based outside the EU, this requires establishing a legally recognized entity within the EU, establishing an office in one of the EU member states, and ensuring effective governance within the EU. Tether will then need to be approved as an electronic money institution (EMI) or credit institution.
However, things get more complicated when you consider the size of USDT in terms of market capitalization and user base. It is likely to be classified as a sensitive cryptocurrency token subject to more stringent requirements due to its potential impact on financial stability. Tether will therefore need to meet higher capital requirements, adhere to interoperability standards, and develop strong liquidity management policies.
Therefore, stablecoin providers must navigate a very complex legal and regulatory path to continue operating in the EU.
What are the restrictions on stablecoins continuing to operate in the EU?
Natalia Latka: Being approved as a significant EMT issuer means that a company can process a higher volume of transactions compared to a non-critical issuer before triggering regulatory action, such as a moratorium on further issuance. However, the exact operational implications for significant EMT issuers of approaching or exceeding these higher standards will vary depending on the specific case.
For stablecoins denominated in non-EU currencies, MiCA applies restrictions through Article 58(3). These restrictions begin when single currency trading volume exceeds 1 million transactions or exceeds 200 million euros per day. If these limits are exceeded, issuers must cease issuance and devise strategies to reduce the use of cryptocurrency assets. Therefore, Tether is subject to these restrictions.
To comply, Tether must analyze the MiCA regulations, focusing on the definitions of “transaction” and “medium of exchange.” Insights from the EBA’s November 2023 consultation will be important. Despite possible exemptions, Tether could still exceed these limits, impacting its legality in the EU.
What impact will OKX’s decision to delist USDT have on the wider EU cryptocurrency market?
Natalia Latka: OKX’s decision could be a harbinger of broader changes in Europe. Exchanges may delist or restrict stablecoins that do not comply with MiCA in anticipation of regulatory scrutiny or to fit them into a new legal framework. These changes could alienate non-compliant tokens or force issuers to comply.
Although MiCA is a regional regulation, its implications can be applied globally. Non-EU stablecoin issuers can influence global standards for stablecoin regulation by adjusting their operations to access European markets. Nonetheless, MiCAR’s stringent requirements may also have a negative impact on stablecoin issuers’ operations and willingness to serve the EU market.
Market reaction to MiCA implementation may increase adoption of alternative stablecoins. EMTs pegged to the Euro are likely to increase in popularity. However, it is a stretch to think that a stablecoin pegged to the euro will quickly reach or surpass the trading volume of its USD-pegged counterparts or gain a place in the trading pair in the near term.
Due to market dynamics and the unwavering dominance of USD-denominated stablecoins, it is unlikely that such a major change will occur in the near future.