MiCAR to Give Advantage to Non-European Players in the EU Stablecoin Market

 However, rules for stablecoins issuers in general remain concerning.   
 

Key Takeaways

• Stablecoins in the EU require 2% regulatory capital, and major ones require 3%, which is the highest.

• Regulation in the European Union is expected to increase further. 
 

MiCAR is set to give an edge to non-European companies in the EU stablecoin market, especially Tether and other popular issuers.  A comprehensive and relevant regulatory framework is needed to avoid these loopholes. Otherwise, the European virtual asset market and the banking sector would be jeopardised.   

   
The MiCAR, or Markets in Crypto-Assets Regulation, started its first phase on June 30 to divide stablecoins into e-money tokens (EMTs) and asset-referenced tokens (ARTs), marking a massive development in the continent's stablecoins-focused regulation landscape. However, rules for non-European stablecoins issuers, such as for USD-powered stablecoins, remain concerning. The daily activities of stablecoins in the Eurozone are limited to €200 million within 1 million transactions, which is challenging to implement due to stablecoins' borderless nature. 

Since stablecoins issued in Europe can be stored, traded, staked, and lent anywhere globally, it is difficult to determine which tokens fall under the European MiCAR rules. Also, regulatory capital requirements differ across locations. Most stablecoins require 2% regulatory capital, and major ones require 3%, which is the highest. This rigid policy prevented Tether from applying for an e-money license. Determining when a stablecoin can be classified as a major one complicates the matter further.  

MiCAR explains that when several issuers launch the same e-money token, it is essential to abide by the regulatory requirements when all the issuers' data are summed up. Additionally, MiCAR specifies that all EMT holders must have a claim on the issuer, which raises questions regarding participants' eligibility, especially considering the borderless blockchain world, where tokens can be swapped. This categorisation makes it challenging to follow and may cause European issuers to suffer.

   
Regulation in the European Union is expected to increase further. Managing stablecoins individually in each country within a closed environment is impossible. The decentralised nature of the blockchain demands a comprehensive and coordinated legal framework. While using the same stablecoins sounds good, there are major concerns with possible regulatory loopholes. If these regulatory unclarities are not addressed, the market may shift in favour of non-European firms, leading to an imbalance.   

 
For the European virtual asset market to be balanced, it needs a single regulatory system that addresses existing loopholes and has stringent measures for all stakeholders. This is the only way to ensure the soundness of European financial systems and avoid unintended disadvantages for European stablecoin issuers.