The blockchain space continues to boom, and recent data from the International Monetary Fund (IMF) shows that the market capitalization of stablecoins – digital currencies pegged to a stable asset like the U.S. dollar or Euro – has quadrupled to over $120 billion in 2021, with stablecoin trading volumes overtaking those of all other crypto assets, including bitcoin.
A recent PYMNTS report on global cryptocurrency use also revealed that the emergence of stablecoins and next-gen payments is increasingly catching the eye of banks and other financial service providers who are assessing the potential of blockchain-based assets and utility tokens to clear and settle accounts.
See the report: Capturing the Global Cryptocurrency Payments Opportunity
Read more: Stablecoins and Next-Gen Payments: Marching Toward Institutional Adoption of DeFi in Europe
In the European Union (EU), this subset of crypto assets has not escaped the eye of regulators, either, and their extensive coverage in the soon-to-be-ratified Markets in Crypto-Assets (MiCA) framework is a clear indication that the EU intends to have an important role in addressing potential risks that could arise from stablecoin issuance.
One of the standard requirements MiCA has laid out for all stablecoin issuers is to have in place “at all times” capital funds of either €350,000 (about $400,000) or 2% of their total reserve assets – depending on which one has the larger amount of funds.
“Significant” stablecoin issuers with a market capitalization of at least €1 billion and a minimum of 500,000 daily transactions – including major global stablecoins like USD coin (USDC) and USDT – will also be subject to additional requirements under MiCA, such as maintaining capital funds equivalent to 3% of their reserve assets. Blockchain-based cryptocurrency Tether, for example, will not be spared under the watchful eye of MiCA.
The USDT issuer, responsible for about half of the stablecoins in circulation, has already found itself in hot water in the United States, where it was recently fined $41 million for misleading customers and potential buyers for almost three years by claiming its digital tokens were backed by sufficient dollar reserves.
See also: Tether Faces Increased Regulatory Scrutiny
Read more: Tether Must Pay $41M After Misleading Customers About Stablecoin Backing
PYMNTS also reported back in July that U.S. Treasury Secretary Janet Yellen had met with several top officials, including the chairman of the Federal Reserve and the head of the Securities and Exchange Commission (SEC) and six other top officials, to investigate the company’s dealings “before it put the U.S. financial system at risk.”
And if these MiCA rules aren’t stringent enough, the framework further outlines measures aimed at limiting the use of stablecoins within the EU altogether.
The proposal states that restricting the issuance of stablecoins “could potentially be justified, as the risks posed by stablecoins, and in particular those that could reach global scale (including risks to financial stability, monetary policy and monetary sovereignty), would exceed the benefits offered to EU consumers in terms of fast, cheap, efficient and inclusive means of payment.”
Overall, the regulations are expected to advance the expansion of cryptocurrency businesses across the 27-nation E.U. bloc. As part of the planned benefits, a “passportable” license would enable a crypto firm licensed in one EU nation to set up operations in another without needing an additional license from that local government.
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