
The European Securities and Markets Authority (ESMA) has given crypto firms until March 31 to comply with the EU’s new stablecoin rules. The regulations, which are part of the broader Markets in Crypto-Assets (MiCA) framework, require firms to either restrict or delist stablecoins that don’t meet the standards.
MiCA’s stablecoin provisions have been in effect since mid-2024, but ESMA now wants firms to finalize changes by the end of the first quarter. The regulator says firms can keep non-compliant stablecoins available for selling off, but not buying, until then. It warned that delays could disrupt markets.
Only stablecoins authorized by a national regulator within the EU can remain listed. These tokens must maintain decent reserves and adhere to transparency and governance requirements. The new rules seek to ensure that issuers have adequate liquidity and that investors know what they’re buying.
Tether’s USDT is one stablecoin under scrutiny. It’s unclear whether Tether intends to apply for EU authorization. The company recently ended support for its euro-pegged stablecoin, citing regulatory challenges. Observers say that Tether’s main stablecoin could face tougher requirements as a “significant” stablecoin under MiCA, including higher capital reserves and more stringent oversight.
With ESMA’s deadline approaching, crypto exchanges and stablecoin issuers in the EU are under pressure to meet the new standards or risk losing access to Europe’s large and growing digital asset market.
According to Adam O’Neill, Chief Marketing Officer at Bitrue, the crypto exchange “tentatively expects to have segregated offerings to customers based on the applicable regulations.”
Bitrue, which typically handles over $5 billion a day in crypto trading volumes, believes legislation is necessary to guide the industry, weed out bad actors, and provide protections to investors.
“After a period of time we anticipate that MiCA-compliant stablecoins will dominate the market due to widespread adoption within the EU, which will also lead to increased trust and adoption in other jurisdictions. As such, at that time we would not anticipate a large market for non-compliant coins and segregated offerings may not be required,” said Adam.
When asked if they are concerned about losing users to exchanges that continue to list non-compliant stablecoins, Bitrue’s CMO said that long-term they do not feel that this will be an issue as the exchange believes that non-compliant stablecoins will be gradually phased out due to market forces.
“On the contrary, we believe that by being fully compliant with MiCA and other worldwide regulations, we can demonstrate that Bitrue is a regulated and trustworthy player in the industry, which will translate into more customers choosing to manage their assets with us,” he added.
Speaking on how this might affect the diversity of stablecoin options available on the Bitrue platform, Adam said they do not expect every stablecoin to become MiCA-compliant, which will indeed reduce the potential options available for EU customers.
“The stablecoin market is booming right now though with more entities trying to capitalize on this opportunity, so over the long term we will still be able to provide a healthy range of options that can fulfill any user needs,” he concluded.
Some platforms, like Coinbase, preemptively delisted USDT in December, while others, including Binance and Crypto.com, kept the token available to EU users for now. This has left EU crypto traders pretty uncertain since, for now, Circle is the only major stablecoin issuer with the required EU license.
However, a compliance officer at a major crypto exchange told FinanceFeeds that even Circle’s USDC presents a tricky challenge for the MiCA framework. While the EBA doesn’t directly call out Circle, their review perfectly describes the situation Circle is currently in.
“Here’s the deal: Circle operates both an EU-based entity licensed under MiCA and a non-EU entity that’s not subject to EU laws. However, USDC issued by either entity is fully interchangeable and identical, making it hard to differentiate.”
The compliance exec, who asked not to be identified, highlighted that MiCA doesn’t specifically address this kind of “one leg out” setup. It simply requires stablecoins to be issued by an EU-based entity, leaving a gray area in how this scenario should be handled.
Shifting the market away from dollar-backed stablecoins
While it makes sense that MiCA left out some parts of the crypto world, like decentralized smart contracts and NFTs, it raises the question: should stablecoins have been treated the same way?
MiCA introduced strict caps on issuance and transactions for certain USD-pegged “e-money” tokens, like USDC, USDT, and BUSD. The limits are set at 1 million transactions by volume or 200 million euros by notional value. The idea is to push for euro-denominated stablecoins, shifting the market away from dollar-backed ones and reducing risks tied to large-scale stablecoin adoption.
From the EU’s standpoint, this strategy is understandable, but it feels like trying to jam a square peg into a round hole. Zooming out, the total global market cap for stablecoins is around $200 billion, with USDC, USDT, and BUSD making up nearly three-quarters of that. Despite their dominance, the European market share for USD-backed stablecoins is already well beyond these limits.
According to Martin Håkansson, COO at EuroPay Connect, there’s still hope that these changes can be made without waiting for MiCA II, as ESMA, the EBA, and other European authorities work on secondary rulemaking and technical standards.
“One possible approach could involve a more nuanced, tiered system that adjusts limits based on the issuer’s size and maturity. Regardless of the method, it should be possible to find a better balance between competing interests and concerns than what MiCA currently offers,” he added.
Despite concerns about market volatility, BlockLedger Labs CEO Rajesh Verma argues the impact will be limited to the EU.
“Asia accounts for 80% of USDT trading volume, with the U.S. also dominating global crypto trading. Also, to align with MiCA requirements, Tether invested in compliant firms like StablR and Quantoz Payments. Tether’s CEO, Paolo Ardoino, made it clear that they’re not planning to ditch the EU anytime soon. Even though USDT can’t be traded on MiCA-compliant exchanges right now, traders can still hold the stablecoin in non-custodial wallets as a short-term fix,” Rajesh concluded.
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- Source: https://financefeeds.com/analysis-how-far-will-mica-regulation-dent-tethers-market-share/