The European Union’s Markets in Crypto-Assets (MiCA) legislation, signed into law on May 31, 2023, has received mixed reactions from the crypto industry. While the legislation is seen as a positive step in providing regulatory guidance for cryptocurrencies, there is controversy surrounding one particular measure—the introduction of a daily transaction cap of €200 million for private stablecoins like Tether and Circle’s USD Coin.
Legal experts Chander Agnihotri and Rachel Mawer-Cropper from law firm Clyde and Co have expressed concerns that the daily transaction caps could hinder the use of stablecoins and have called for a revision of the framework. Stablecoins were introduced as a solution to address the price volatility of cryptocurrencies by mirroring the value of fiat currencies, particularly the US dollar.
Agnihotri argues that regulators have become more focused on regulating private stablecoins due to recent incidents such as the collapse of Terra’s algorithmic stablecoin UST in May 2022 and the brief de-pegging of USDC following the collapse of Silicon Valley Bank earlier this year. Regulators are concerned about the potential impact that the failure of larger stablecoins could have, considering their stronger links to the traditional financial system through reserves.
Mawer-Cropper clarifies that the €200 million cap is not a ban but requires issuers to cease further issuing activities and work with regulators to bring transactions under the cap if it is exceeded. However, she anticipates that the use of larger stablecoins will quickly become stifled under the current rules. She believes it would be sensible to assume that central bank digital currencies (CBDCs) may flourish at a faster rate due to the potential dampening effect on stablecoin use.
While acknowledging the potential negative impacts of the regulations, Mawer-Cropper points out that MiCA lawmakers are unlikely to have overlooked the prevalence of private stablecoins in other jurisdictions. If stablecoin usage remains relatively unrestricted elsewhere, it could adversely affect the crypto market in the EU.
MiCA’s controversial legislation
Despite facing criticism, MiCA has received largely positive feedback. Agnihotri highlights that the legislation will provide better market access for startups and smaller entities, fostering innovation and competition. He acknowledges that some parts of the legislation may benefit from adjustment, as is expected with any piece of legislation.
Paolo Ardoino, Tether’s chief technology officer, emphasizes the need for continued conversation and potential revision of the framework before the guidelines are enacted upon private stablecoin providers. He appreciates MiCA as a commendable initiative and describes it as the most comprehensive legislation the industry has seen to date. While he doesn’t comment specifically on how it might apply to USDT trading in Europe, he recognizes that the daily trading cap may impact private stablecoins, but notes that the limits apply to specific purposes.
Critics have raised concerns about the cautious nature of the legislation and its ability to mitigate threats to the stability of the broader financial market. Mawer-Cropper emphasizes that the success of MiCA will depend on how it is enforced at the member-state level and whether lawmakers will continue to review it, considering the rapid pace of innovation in the crypto industry.
MiCA will be implemented after its publication in the Official Journal of the EU, and many regulations and guidelines for crypto firms are expected to come into effect in 2024.
