MiCA vs. cryptocurrencies: can USDT and other stablecoins survive in the EU?

The European cryptocurrency market is on the verge of significant changes due to the MiCA regulation, which sets strict requirements, including for stablecoins. Popular USDT and DAI risk being permanently removed from European platforms, which is causing concern among users. Will the new rules really protect consumers, or will they be a blow to innovation and a big leap towards monopolization?

The European law «Markets in Crypto Assets Regulation» (Markets in Crypto-Assets Regulation or MiCA for short) partially entered into force in June 2024, and the date of the next tightening related to the licensing and authorization phase is approaching (January 2025). They are aimed at reducing risks for consumers and ensuring the stability of the European cryptocurrency market. At the same time, they raise entry barriers for many large stablecoin issuers, such as Tether (USDT) or MakerDAO (DAI), which do not comply with the new EU standards. 100%. According to the regulation, stablecoins that do not meet these requirements can be removed from the market. Here are some of them:

• Stablecoins should be fully backed by reserves equivalent to the value of the issued tokens. The reserves should be held in reliable financial institutions within the EU and consist of highly liquid assets such as cash deposits or government bonds.
• The MiCA prohibits stablecoins that maintain price stability solely through algorithmic regulation (for example, Terra’s UST).
• Issuers should regularly provide data on reserves, including their composition, liquidity, and location. This information should also be made publicly available.
• The stablecoin reserves should be audited by independent auditors with regular publication of the results.
• Issuers must ensure that stablecoins can be quickly and easily exchanged for the base currency (e.g., euro or US dollar).
• Provisions should be made to avoid any liquidity or insolvency risks.
• In the event of an issuer’s failure, stablecoin holders are entitled to reimbursement within the reserves.
• Issuers should provide consumers with full information about the operation of stablecoins, risks associated with them, and stability mechanisms.
• Stablecoins that have a significant turnover or are widely used are considered «significant». Such assets are subject to additional requirements: daily turnover should not exceed €200 million, no more than 1 million daily transactions per day, and increased supervision by regulators, including the European Central Bank (ECB) and the European Securities and Markets Authority (ESMA).
• Issuers must be licensed in the EU and operate in accordance with the national laws of EU member states.
• They are required to be registered in an EU country and subject to local regulatory authorities.

Results of new MiCA enhancements

These requirements have already led to the fact that the cryptocurrency exchange Coinbase temporarily removed a number of popular stablecoins from the European platform on December 13, 2024including USDT, DAI, PAX, PYUSD, GUSD, GYEN. The main reason for this was that they did not meet MiCA standards.

Instead, only those tokens that have the appropriate certification, such as USDC and EURC, will remain. Circle, the issuer of these stablecoins, has already stated that they are compliant with the new EU rules.

RLUSD from Ripple has not yet been approved, but the company «is actively exploring» methods by which it could legally enter the EU market.

French banking giant Societe Generale is partnering with Bitpanda to develop the EUR CoinVertible (EURCV) stablecoin, which fully complies with MiCA standards.

Meanwhile, the largest issuer, Tether, is only fighting back, as the company holds most of its USDT reserves in US government bonds, repurchase agreements, and money market funds. Also, on November 27, Tether stopped supporting its euro-pegged stablecoin EURt (EURT) on all blockchains.

But it is actively looking for workarounds to stay in the market. For example, the company has invested in the Dutch firm Quantoz Payments, which plans to issue USD/Euro-denominated tokens that meet MiCA requirements. In addition, on December 17, Tether announced an investment in StablR, a European stablecoin provider that received an Electronic Money Institution (EMI) license from the Malta Financial Services Authority in July. Currently, StablR offers MiCA-approved euro (EURR) and dollar (USDR) stablecoins on the Ethereum and Solana blockchains. However, these tokens have a very low capitalization.

How will the withdrawal of some stablecoins affect the EU market?

• Stablecoins such as USDT are an important tool for fast transactions and preserving the value of assets in US dollars. Their removal could limit European traders and investors by forcing them to use only a limited list of alternatives, such as USDC or EURC. This could push the market towards monopolization by a few players: Circle and Coinbase. This goes against the decentralized nature of cryptocurrencies.
• USDT accounts for more than 12% of all trades on the Coinbase platform, with a daily transaction volume of about $1 billion. A ban on such a volume of assets could lead to a decrease in market activity and liquidity.
• Financial institutions that use stablecoins for cross-border transfers or integration with DeFi may face additional costs to comply with MiCA requirements.
• Some users may switch to non-EU platforms or use other digital assets, which will reduce the attractiveness of the European crypto market.

Strict regulation of stablecoins in the EU, although aimed at protecting consumers, could have serious negative consequences for the cryptocurrency market. For example, it could lead to monopolization, reduced liquidity, and capital outflow. On the other hand, users will receive more guarantees and protection.

New report by Kaiko research company and the Dutch cryptocurrency exchange Bitvavo showed that trading volumes in euros are gradually increasing, and stablecoins are adapting to the new MiCA rules.

The monthly volume of euro stablecoins in November amounted to almost $800 million.

Sources: Societe Generale, LegalNodes, Bitcoinist, Binance Square, ScienceDirect, IAPSS, Ledger Insights, The Blockchain, Circle