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If the European Union’s planned Markets in Crypto-Assets (MiCA) law is implemented currently, dollar-pegged stablecoins may be prohibited in the bloc’s 27 countries.
The primary crypto legislation of the European Union has already been enacted, but specific issues have to be worked out.
Blockchain for Europe and the Digital Euro Association wrote a letter to the EU Council, a collegiate body made up of EU member states, over the weekend to repeal controversial laws that would essentially stifle any significant stablecoin initiatives unrelated to the euro.
According to the crypto industry, MiCA restricts the issue and use of stablecoins not denominated in euros or another official currency of an EU Member State.
Markets in Crypto-Assets (MiCA) is the first effort to create comprehensive regulation for EU digital assets.
This might result in the prohibition of Tether’s USDT, Circle’s USD token, and Binance’s USD, which account for a significant portion of global crypto transaction volumes.
The three largest stablecoins by trading volume are in danger of being prohibited in the EU by 2024 due to quantitative constraints on the issue and usage of e-money tokens denominated in foreign currency under MiCA, according to both groups in the letter.
Restricting their usage in the Eurozone would freeze up crypto markets here, potentially disruptive implications and a significant departure of crypto activity outside the EU.
If MiCA is implemented as-is, the organisations predict severe short-term price volatility caused by dislocation effects, increased pricing, and reduced competition in the burgeoning digital assets business. According to them, the outcome would drag down innovation in the EU.
Both organisations want clarification from the lawmaker, stressing that any restrictions on the foreign currency should be extremely limited in scope.
To safeguard the function of USD-referencing stablecoins in facilitating crypto trading and providing liquidity to decentralised finance pools, they have specifically demanded explicit definitions for uses as a means of exchange under MiCA.
Patrick Hansen, an EU policy specialist and Crypto Venture Advisor at Presight Capital who supports this joint letter, tweeted that providing clarity is also in the EU’s interest since it encourages these issuers to seek a license, which a too-broad scope would discourage.
EU stated that euro-pegged stablecoins wouldn’t compete anytime soon – MiCA won’t help.
Currently, European crypto investors cannot rely on stablecoins controlled by the euro as their proportion in trade volumes is negligible.
The organisations added that it is impossible to expect investors to substitute USD-referencing stablecoins in crypto trading by January 2024, much less seamlessly.
According to a June assessment on the euro’s international role issued by the European Central Bank, the currency’s 0.2% share of crypto markets is very modest.
As a result, Euro-based stablecoins are less liquid. They tend to be sold similarly to other hazardous assets instead of acting as a vehicle in digital transactions and trade.
In June, the debut of the euro coin (EUROC), Circle’s most recent stablecoin tied to the euro, provided market participants confidence in a substantial euro-pegged stablecoin. Still, it is uncertain whether it will be widely used.
According to CoinGecko’s data, EUROC has a market valuation of just $76 million, making it the 320th biggest cryptocurrency. The dollar-denominated USDT is the third largest cryptocurrency by market capitalisation, with a value of around $67.5 billion.