EU Crypto Lobby Fights MiCA Limits on US Dollar Stablecoins

Dollar-pegged stablecoins could be blocked in the EU’s 27 countries if the bloc’s new Markets in Crypto-Assets (MiCA) legislation comes into effect in its current form.

The European Union’s landmark crypto law has already been approved, but technical details still need to be ironed out.

Blockchain for Europe and the Digital Euro Association sent a letter over the weekend to the Council of the European Union, a collegial body formed by EU member states, in an attempt to reverse controversial rules that would effectively halt all major stablecoin projects linked to anything other than the euro.

The crypto industry says MiCA imposes restrictions on the issuance and use of stablecoins that are not denominated in euros or other official currency of an EU member state.

This would possibly ban Tether’s USDT, Circle’s USD coin, and Binance’s binance USD, which account for a huge portion of crypto trading volumes globally.

“The three largest stablecoins by trading volume are at risk of being banned in the EU from 2024, due to quantitative restrictions on the issuance and use of EMTs [e-money tokens] denominated in foreign currency under MiCA”, argue both associations in the letter.

“Restricting their use in the euro area will lead to the crypto markets here taking hold, with potentially destabilizing effects and a large outflow of crypto activities outside the EU.”

If MiCA is enforced as is, the groups reckon there could be “extreme short-term price volatility driven by dislocation effects” along with higher prices and less competition in the evolving digital asset industry. The result will “drag down” innovation in the EU, they said.

Both associations are seeking clarification from the legislature, arguing that any restriction on foreign currency should be very narrow in scope.

In particular, they have called for precise definitions for “use as a medium of exchange” under MiCA to protect the role of USD-denominated stablecoins in enabling crypto trading and in providing liquidity to DeFi (decentralized finance) pools.

Patrick Hansen, EU policy expert and Crypto Venture Advisor at Presight Capital, who supports this joint letter, wrote on Twitter that providing clarity “is also in the EU’s interest, as it wants these issuers to apply for a licence”, as too broad a scope would disincentivize.

MiCA said that stablecoins linked to the euro will not compete at first

At the moment, European crypto-investors cannot rely on euro-dominated stablecoins as they account for a small share of trading volumes.

“It is unrealistic to expect them [investors] to replace USD-denominated stablecoins in crypto trading, never mind to do so in a smooth manner by January 2024,” the associations wrote.

According to a June report published by the European Central Bank on the international role of the euro, the currency’s share in crypto markets is “extremely small”, just 0.2%.

Euro-based stablecoins are less liquid as a result and “tend to be sold in the same way as other risky assets rather than acting as a vehicle in digital transactions and trade”.

Circle’s newest euro-denominated stablecoin, euro coin (EUROC), launched in June, gave market participants some confidence in a major euro-pegged stablecoin, although it is not clear when it will be widely used.

As of now, EUROC has a market cap of just $76 million, according to CoinGecko’s data, ranking it as the 320th largest token. For scale, USDT is the third largest cryptocurrency by market capitalization, with more than $67.5 billion.

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