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EU Stablecoin Ban Would Cause “Extreme Volatility,” Lobbyists Warn

Legal

cryptobriefing.com 23 August 2022 14:08, UTC
  
Reading time: ~3 m

Blockchain for Europe and the Digital Euro Association have said that the ruling could cause “extreme short-term volatility” and “a major outflow of crypto activities outside of the EU.” 

Lobbyists Sound Alarm on EU Crypto Legislation 

Crypto lobbyists have warned that the European Union’s proposed Markets in Crypto-Assets regulation could be a disaster for the industry if it comes into effect in its current form. 

In a letter to the EU Council, Blockchain for Europe and the Digital Euro Association have warned that MiCA’s plans to introduce restrictions on crypto tokens could impact USDT, USDC, and BUSD. According to their letter, the current MiCA guidelines would effectively ban the top three stablecoins in 2024, which would have severe spillover effects across the industry. The letter noted that a ban would cause markets “to seize up,” which would lead to “potentially destabilizing effects and a major outflow of crypto activities outside of the EU.”

The EU’s MiCA legislation proposes limiting issuance and use of tokens that are not denominated in an official currency of one of the union’s 27 member states. The proposal includes plans to introduce limits on tokens used as a means of exchange, something Blockchain for Europe and the Digital Euro Association have taken issue with since it could apply to stablecoins used for trading.  

According to the letter sent to the EU Council, if the proposed legislation was implemented, it would cause “extreme short-term volatility,” “dislocation effects,” “fragmented liquidity,” and an exodus of crypto innovation from the EU. The letter said that the restrictions would incentivize users to use unregulated services outside of the EU and “compromise the EU’s efforts to take advantage of the potential of crypto and blockchain.” 

Euro-Pegged Stablecoins Can’t Compete

While the legislation wouldn’t impact euro-denominated stablecoins, Blockchain for Europe and the Digital Euro Association has said that the market would still be severely affected. That’s because euro-pegged stablecoins account for a tiny fraction of the market relative to USDT, USDC, and BUSD (the letter noted that euro-based stablecoin trading volumes sit at around $21 million against USDT’s $53 billion, citing research from the European Central Bank). “It is unrealistic to expect EUR-referencing stablecoins to catch up with USD-referencing stablecoins in trading volumes and replace them in trading pairs in the foreseeable future,” the letter said. 

To overcome the potential problems the restrictions could cause for the crypto industry, the lobbyists want the EU to take account of the role dollar-based stablecoins play in crypto trading and DeFi and clarify the definition of tokens used as a means of exchange. 

The European Commission first proposed MiCA in September 2020 and lawmakers approved it in June 2022. Next, details need to be finalized and the European Council and European Parliament need to agree to the ruling before it is formally adopted. 

Disclosure: At the time of writing, the author of this piece owned USDT, ETH, and several other cryptocurrencies. 


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