Tether, Circle and other big stablecoin issuers will soon be on a tight leash in the European Union.
With new rules that take effect on June 30, not only will they require appropriate authorization to operate in the 27-nation trading bloc, they will also face the tough limits on transaction numbers and values set out in the Markets in Crypto Asset (MiCA) legislation.
The regulations mean that some of the biggest stablecoin issuers including Tether, whose dollar-pegged USDT is the world’s largest by market cap, and Circle, responsible for second-ranked USDC, may not be able to operate in the EU, said Robert Kopitsch, the secretary-general of Blockchain for Europe.
“Non-EU, euro-denominated stablecoins – if they are over a certain threshold – then you need to stop issuing and using them, and that creates a problem because 99% of the stablecoins market is in USD,” Kopitsch said on the sidelines of CoinDesk’s Consensus 2024 conference in Austin, Texas last month.
MiCA is the EU’s comprehensive package of rules for the crypto industry. It was voted into law last year and allows firms licensed by one member nation to operate throughout the bloc.
According to the law’s Article 23, companies must stop issuing an asset-referenced stablecoin that is used as a means of exchange for more than 1 million transactions or a value north of 200 million euros ($215 million) a day. The stablecoin rules take effect at the end of the month, and the other provisions are expected to come into force in December.
Blockchain for Europe and the Digital Euro Association – a think tank – tried to fight the measures in a 2022 letter arguing that they effectively banned large stablecoin issuers.
A spokesperson for the EBA told CoinDesk that the provisions do not prevent companies from issuing stablecoins denominated in assets other than the euro. The key is whether they’re used as a means of exchange, to pay for goods or services. If so, then the specific caps apply.
Issuers can service Europeans without limitations when the tokens aren’t a means of an exchange, Jón Egilsson, co-founder at Monerium said in a statement. That includes transactions between currency areas, peer-to-peer transactions and where a cryptocurrency is exchanged for an e-money token, he said.
Though the EBA has yet to clearly define how it will measure these values, a consultation document suggests that transactions with both parties based outside of the EU might be excluded, but any transaction with at least one party in the EU may be counted.
According to the consultation, a transaction includes both on-chain and off-chain transfers. Movements between addresses or accounts of the same person do not qualify as a transaction.
A final report on how the EBA will measure transactions is likely by the end of the month, a spokesperson told CoinDesk.
Companies that have had to suspend issuance will need to submit a plan showing they can keep to the limits before being reinstated. This could be tough: USDT’s daily global trading volume is about $27 billion according to CoinGecko data. USDC’s is $5 billion.
Another barrier is obtaining the necessary certification.
“When you’re a stablecoin issuer at European level you need to have an e-money institution license or banking license, which is a very costly, long process,” Kopitsch said.
So Tether, Circle and other issuers have just three days to secure an e-money license to operate legally.
Circle which conditionally registered as a Digital Asset Service Provider with the French Financial Markets Authority in April, aims to have an e-money license by the deadline, a spokesperson for the company said.
“Circle is committed to full compliance with EU’s MiCA regulations. We plan to onshore EURC to the EU and issue it from Circle France in a MiCA-compliant manner,” the spokesperson said. “Additionally, we intend to issue USDC for our EU-based customers from the same entity in accordance with MiCA and subject to regulatory approval.”
EURC is the company’s euro-backed stablecoin. Tether’s equivalent is EURT. Earlier this week crypto exchange Bitstamp delisted the Tether token, citing MiCA. OKX delisted USDT in March, saying it wanted to focus on euro-denominated liquidity in the region.
“Tether has engaged extensively with its exchange counterparties in Europe regarding the requirements, including those pertaining to the ongoing listing of USDT and other Tether tokens, and the interpretation of key regulatory provision,” said Paolo Ardoino, Tether’s CEO, in a statement. “While Tether is optimistic about MiCA’s implementation, it remains crucial that stablecoin regulatory policies enacted are balanced, protect consumers, and nurture growth in our emerging industry.”
“The question is what happens next because there’s a growing understanding that there is a need for a solution,” Kopitsch said regarding the stablecoin rules’ restrictive nature.