The delisting of the leading stablecoin by the world’s fourth-largest cryptocurrency exchange for an entire continent has caught the attention of many. However, this could be an indication of what is to come. As the Markets in Crypto-Assets Regulation (MiCA) regulatory regime comes into effect at the end of June, more disruptions can be expected. Off-shore stablecoins, in particular, may face challenges. Nevertheless, MiCA is expected to create a safer and stronger ecosystem for stablecoin issuers and users in the long run, according to sources.
OKX, a crypto-exchange based in Seychelles, recently delisted Tether (USDT) trading pairs for users in the European Economic Area (EEA) in preparation for MiCA. In a customer support message, OKX stated that only EUR and USDC trading pairs would be available for spot trading moving forward.
The news of the delisting did not come as a surprise to market observers. Christian Catalini, the founder of the Massachusetts Institute of Technology Cryptoeconomics Lab, commented that he was not surprised by the delisting and expects significant changes in the stablecoin landscape worldwide as new regulations are passed. He believes that new players, including those from traditional banking and fintech, will enter the market.
Arvin Abraham, a partner at the UK-based law firm Goodwin Procter, expects similar delistings in the future. He believes that there will be a significant shift in the stablecoin landscape in the EEA due to MiCA. Some of the current leaders may have to exit the market if they are unable to comply with the new regulations.
Jean-Baptiste Graftieaux, the global CEO of France’s Bitstamp cryptocurrency exchange, stated that MiCA will undoubtedly impact stablecoin offerings in the European Union. He emphasized that they are closely monitoring developments in this area.
The main challenge for stablecoin issuers is the requirement to be an EEA entity and authorized as an Electronic Money Institution firm in the EEA. Graftieaux added that this is problematic for existing stablecoin issuances, especially considering the short timeline to meet the new regulatory requirements.
Non-European stablecoin issuers will face significant costs in establishing an entity authorized in an EU member state. Additionally, all issuers, regardless of their location, will have to meet stringent requirements such as maintaining 1:1 reserves, providing permanent redemption rights, and quarterly reporting to their EU home state regulator if the value exceeds 100 million euros.
Jon Helgi Elisson, the co-founder and chairman of Monerium, a company issuing compliant on-chain fiat stablecoins in Europe, stated that most stablecoins offered in Europe today are not compliant with existing electronic money rules, let alone the upcoming MiCA regulations. He believes that it is unfair to have a market with compliant and non-compliant companies.
Elisson noted that coming into compliance could be very expensive for stablecoin issuers. Under MiCA, fiat-backed stablecoin issuers will need to maintain a 1:1 ratio of liquid reserves and segregate user’s funds, giving the customer a claim on the underlying funds rather than the company.
The compliance demands will be higher for larger market-cap issuers. MiCA distinguishes between “significant” and “non-significant” issuers, requiring “significant” issuers to set aside more equity against potential losses.
The impact of MiCA may pose challenges for those operating in international markets, resulting in increased compliance costs, barriers to market entry, and conflicts with other regulatory frameworks. However, Jean-Marc Stenger, the CEO of France’s Societe Generale – Forge, sees MiCA as an opportunity for Europe and euro stablecoins.
Although there may be short-term disruption in the market due to the delisting of Tether, the long-term benefits for investors and markets are emphasized. The regulatory standards set by MiCA focus on market integrity and investor protection, setting an example for other markets and increasing investor confidence.
MiCA has already influenced the UK’s commitment to digital assets and is seen as a strategic move to lead the international regulatory stage alongside the EU.
Graftieaux believes that MiCA does not hinder crypto and blockchain innovation but rather offers legal clarity and certainty while encouraging cross-border innovation between EU states.
While MiCA is not perfect, it provides a starting point for more robust stablecoin regulation. It is considered better than the current regulatory situation in the US, where there is a lack of clarity. Once there is clarity, stablecoins that can solve real consumer and business needs at scale will emerge.