As the EU’s Markets in Crypto-Assets (MiCA) regulatory framework comes into effect, the landscape for stablecoins like USDT is facing significant transformation. MiCA, which aims to provide comprehensive regulation for cryptocurrencies and digital assets across EU member states, introduces stringent requirements for stablecoins, including reserve management, transparency, and consumer protection.
MiCA’s Impact on Stablecoins and USDT
Starting on June 30, 2024, stablecoins will be regulated in the EU. Stablecoin issuers must obtain authorization from a national regulatory authority. The competent regulator for stablecoins in the EU will be the European Banking Authority (EBA) instead of the national authorities.
Under MiCA, stablecoins that exceed a certain adoption threshold—determined by seven quantitative and qualitative indicators—will be subject to enhanced regulatory requirements. Additionally, the regulation completely bans algorithmic stablecoins. The regulations mandate issuers to maintain sufficient reserves, ensure regular audits, and provide transparent reporting to regulatory authorities. Additionally, MiCA imposes restrictions on the number of stablecoins that can be issued and limits their usage in payments within the EU.
By far the largest and dominant stablecoin is USDT. MiCA rules are set to reshape how crypto exchanges and USDT issuer Tether operate within the EU. The USDT would qualify as one of the categories that needs to be regulated by the European Banking Authority (EBA) under the Markets in Crypto-Assets (MiCA) regime:
- Asset-Referenced Tokens (ARTs): USDT is a fiat-backed stablecoin, which means it is an asset-referenced token (ART) under MiCA. ARTs are subject to EBA supervision and regulation.
- Electronic Money Tokens (EMTs): USDT is also considered an electronic money token (EMT) as it is a digital representation of a fiat currency. EMTs are also regulated by the EBA under MiCA.
- Significant ARTs and EMTs: The EBA is responsible for supervising significant ARTs and EMTs, which are determined based on specific criteria. USDT, being a significant stablecoin, would fall under this category..
According to data from CoinGecko as of June 13, 2024, USDT accounts for 75.92% of the global cryptocurrency market trading volume, far surpassing other cryptocurrencies and stablecoins.
Steno Research strongly expects that exchanges will need to delist the world’s largest stablecoin, USDT, for all EU residents by the end of June.
Beyond MiCA, regulatory efforts are underway globally to address the regulation of stablecoins and other crypto assets. In the U.S., the Financial Stability Oversight Council (FSOC) has advocated for a regulatory framework for stablecoins. Similarly, the International Organization of Securities Commissions (IOSCO) has issued guidance on crypto asset regulation. As the adoption of stablecoins and crypto assets continues to expand, we can expect increased regulatory measures aimed at ensuring financial stability and investor protection.
Tether’s Response
Tether, the issuer of USDT, has responded to MiCA with a public statement underscoring its commitment to regulatory compliance. Tether has assured stakeholders that it is well-prepared to meet MiCA’s reserve and transparency requirements, given its existing practice of regular attestation reports and maintaining a significant portion of reserves in cash and cash equivalents. However, Tether has no plans to be regulated under MiCA rules in the medium term.
Paolo Ardoino, Tether’s CTO, stated, “We view the MiCA framework as a positive development for the crypto industry, providing the regulatory certainty needed for stablecoins to be used confidently by businesses and consumers. Tether is committed to ensuring full compliance with MiCA’s requirements, and we are already working on the necessary adjustments to our operations.”
Position of Leading Crypto Exchanges
If a crypto exchange continues to trade with USDT in MiCA jurisdictions where Tether is not authorized by EBA, the consequences could be severe. The EBA could take legal action against the exchange for violating the MiCA regulations. This could lead to fines, penalties, or even the revocation of the exchange’s operating license.
Leading crypto exchanges operating in the EU, such as Binance, Coinbase, and Kraken, are closely monitoring the situation. These exchanges have voiced a mix of cautious optimism and concern regarding MiCA’s impact on their operations. Binance has already announced that it plans to “restrict the availability of Unauthorized Stablecoins for EEA users, implementing phased changes and product restrictions to ensure compliance and minimize market disruption.”
Coinbase has echoed similar sentiments, highlighting the importance of harmonized regulations across member states to avoid regulatory arbitrage and ensure a level playing field. On the other hand, Kraken is “actively reviewing” plans that may include removing support for USDT on its exchange in the EU.
The largest EU crypto exchange, Bitpanda, indicated that it will continue to support USDT trading despite the upcoming MiCA regulations. OKX has already delisted USDT for EU users in March.
Conclusion
As MiCA’s regulatory framework takes shape, the future of USDT and other stablecoins in the EU remains a closely watched development. Leading crypto exchanges and Tether are preparing to navigate this new landscape, balancing regulatory compliance with operational efficiency. MiCA’s success in creating a robust and transparent crypto market in the EU will depend on the collaboration between regulators, issuers, and market participants.
The transition period will be critical, and stakeholders are hopeful that the EU will provide sufficient guidance and flexibility to ensure a smooth implementation of these pioneering regulations.
