Author: TOM MITCHELHILL, COINTELEGRAPH; Translation: Matsuyuki, Blocking
The daily trading limit in the EU’s crypto asset market (MiCA) legislation may “restrain” the use of stablecoins, and some are calling for changes to the framework.
On May 31, MiCA was signed into law, paving the way for the world’s first cryptocurrency regulatory guidelines.
Among the more controversial measures introduced, however, was a daily trading cap of $219 million (200 million euros) for private stablecoins such as Tether.
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Today, MiCA was formally signed into law by European Parliament President Roberta Metsola and Swedish Minister for Rural Affairs Peter Kullgren (Sweden holds the presidency of the EU ATM Council).
1) Publication in the official journal… pic.twitter.com/qY8QPnEZ9A
— Patrick Hansen (@Blockingddi_hansen) May 31, 2023
Chander Agnihotri and Rachel Cropper-Mawer, legal director and partner, respectively, at global law firm Clyde and Co, said the use of large stablecoins could be “soon restrained” and regulators should consider revisiting the daily limit.
Stablecoins are designed to reflect the price of fiat currency, mainly the US dollar, and were introduced as a solution to the price fluctuations of cryptocurrencies such as Bitcoin and Ethereum.
However, in May 2022, the Terra algorithmic stablecoin UST crashed, and after the Silicon Valley Bank collapsed in early 2023 and USDC briefly uncoupled, Agnihotri claimed that regulators had every right to focus on regulating private stablecoins.
“Because of their closer links to the traditional financial system – through the use of reserves – regulators have been particularly concerned about the impact of large stablecoin failures,” Agnihotri said.
Cropper-Mawer said the 200 million euro cap “does not equal a ban” and if exceeded, issuers would be “required to cease further issuance activities and work with regulators to control transactions below the cap.”
However, Cropper-Mawer noted that the use of certain larger stablecoins is expected to be “quickly suppressed” with the increasing popularity of private stablecoins, but she added that it is expected that legislators will “re-examine this issue.”
Cropper-Mawer said that assuming the central bank digital currency (CBDC) may “develop more rapidly than in other situations” is “wise” because current rules may suppress the use of stablecoins.
However, she quickly pointed out that MiCA lawmakers are unlikely to overlook the potential negative effects that these regulations may have, especially when considering the popularity of private stablecoins in other markets.
“If other jurisdictions allow relatively unrestricted use of stablecoins, this may have a negative impact on the EU’s crypto market.”
Despite the expected level of criticism of such extensive and comprehensive legislation, Agnihotri pointed out that most of the feedback on MiCA is basically positive.
“Under the leadership of MiCA, startups and small entities will be able to enter the market better, promoting innovation and competition. Like any legislation, some parts will benefit from adjustments.”
Tether speaks on MiCA
Tether’s Chief Technology Officer, Blockingolo Ardoino, pointed out that dialogue needs to continue and the framework may need to be revised before guidance is issued to private stablecoin providers.
He said: “Further discussions on technical implementation standards are crucial to clarifying certain terms to the market, and we look forward to seeing the results of these discussions at the appropriate time.”
Ardoino did not comment on the specific details of the legislation and how it might apply to USDT transactions in Europe, but praised MiCA as a “commendable” initiative and described the legislation as “arguably the most comprehensive legislation seen by the industry to date.”
He acknowledged the impact of daily transaction limits on private stablecoins such as USDT. However, he said, “The legislation indicates that these restrictions apply when stablecoins are used for certain purposes.”
There have been a series of criticisms, with some arguing that it is too cautious and others concerned that it does not do enough to mitigate threats to broader financial market stability.
Cropper-Mawer explained, “Ultimately, the success of MiCA will depend to a large extent on how it is implemented at the member state level and whether legislators will continue to review it, especially given the pace of innovation in the crypto industry.”
#MiCA comes into effect at the end of June.
To begin implementation, #ESMA will launch 3 public consultations with stakeholders in July, October, and Q1 2024 → https://t.co/AvePQSapZp.
Details on the duration of each public consultation period. pic.twitter.com/QFlERttwxR
– ESMA – European Securities and Markets Authority (@ESMAComms) June 12, 2023
MiCA will come into effect after its publication in the Official Journal of the European Union, and many regulations and guidelines targeting cryptocurrency companies are expected to begin implementation at some point in 2024.