With the collapse of the UST affiliated with Terra (LUNA), regulation demands for this altcoin sector have also increased. The upcoming EU regulation has strict requirements for stablecoin issuers. Besides that, there are other areas of concern.
How will the new EU law affect this altcoin industry?
As you follow on Kriptokoin.com, the year 2022 brought serious drops in leading cryptocurrencies and financial markets in general. Alongside this, major legal frameworks for crypto have come up in major jurisdictions. It co-sponsored the “cryptocurrency law” of US senators Cynthia Lummis and Kirsten Gillibrand. However, this bill still has a long way to go. However, its European counterpart Crypto Asset Markets (MiCA) bill eventually passed tripartite negotiations.
On June 30, Stefan Berger, member of the European Parliament and rapporteur on MiCA regulation, announced that a “balanced” agreement has been reached, making the European Union the first continent to have cryptoasset regulation. Is the deal really that “balanced”? How will it affect crypto in general and some of the most important altcoin sectors in particular?
Biggest stablecoins / Source: CoinMarketCapNo direct ban, but tighter scrutiny
The industry has received the latest MiCA draft with a mixed response. The cautious optimism of some experts is balanced by the ‘uselessness’ diagnosis on Twitter. The package dropped one of the most worrying parts of Proof of Work (PoW) mining, a de facto ban. However, it still contains a number of controversial guidelines, especially regarding stablecoins.
Ironically, he is assessing the risks stablecoins pose to the economic system. However, the European Commission is wary of a direct ban labeled as Option 3 in the document. Instead, he chooses a combination of “moderate” options. The chosen approach characterizes stablecoins as a close analogue of the EU’s definition of ‘e-money’. However, it does not consider the current Electronic Money and Payment Services directives appropriate to address the issue. As such, it proposes a new set of “stricter” guidelines.
The most important requirement for ‘asset-backed token’ issuers is 2% of the average amount of reserve assets that issuers will be required to store in their funds separately from reserves. This will allow Tether, which claims to have over $70 billion in reserves, to hold a separate $1.4 billion to comply with the requirement. With Circle’s reserve amount ($55 billion), this number will be $1.1 billion.
Another criterion causing turmoil in the community is the upper limit for daily transactions. This limit is foreseen as 200 million euros per day. However, the 24-hour daily Tether (USDT) volume is $50.40 billion (€48.13 billion). USD Coin (USDC) is $5.66 billion (5.40 billion euro). Therefore, such a standard would lead to a forced legal debate. Apart from that, the guidelines set several standard official procedures for stablecoin issuers. These include the requirement to register legal entities in the EU. It also has an obligation to provide quarterly reports and whitepapers with mandatory disclosure requirements.
What lies beyond the stablecoin industry?
Some do not see the strict MiCA guidelines for stablecoins as a major threat. “The framework is far from perfect,” says Candace Kelly, chief legal officer and head of policy and government affairs at the Stellar Development Foundation. However, she says it will help the crypto industry better understand where the EU stands.
Budd White, chief product officer and co-founder of crypto compliance firm Tacen, says concerns about caps on day-to-day transactions could be a barrier to mass corporate adoption in Europe. However, he does not find the 2% demand particularly alarming. He also sees this as a step towards balancing trust and privacy and providing a layer of insurance for investors:
At the end of the day, White justifies some of the industry’s concerns. However, he sees MiCA as a pretty important step for crypto regulation in the EU. He points to another part of the regulation, the guidelines for Non Fungible Tokens (NFT). The current definition sees NFTs as very similar to regulated securities. It leaves an ambiguous space for interpretation of NFT art and collectibles.
In Kelly’s view, there is another area of concern in MiCA besides stablecoins. That’s the cryptoasset services provider (CASP) verification requirements. The framework avoids including personal wallets in its scope. However, Kelly suspects that the regime of verifying the ownership of personal wallets by CASPs and then applying risk-based Know Your Customer and Anti-Money Laundering procedures would be quite burdensome for CASPs.
Michael Bentley, CEO and co-founder of London-based lending protocol Euler, is also positive about MiCA’s ability to support innovation and inspire market confidence. However, it is likely to be very burdensome for many individual crypto investors. Because they have doubts about the individual reporting requirements for transfers over 1,000 euros.
Is this altcoin industry a threat to the digital euro?
There may not be an outright existential threat at this point. But could the European guidelines for stablecoins show the EU’s desire to eventually surpass private digital currencies with its own digital euro project? The European Central Bank launched the two-year investigation phase of the central bank digital currency (CBDC) in July 2021. Also, a possible 2026 version has been released. A recent working paper says that a CBDC with ‘anonymity’ may be preferable over traditional digital payments.
White says he wouldn’t be surprised if the EU’s goal is to reduce competition to create its own CBDC. However, he does not believe that this will be successful. In his view, it is too late as independent stablecoins have become too mainstream to be cut off the market. At the same time, a viable government-backed digital currency has yet to be created. According to him, this development will require trial and error.
For Dixon, this shouldn’t be an either-or conversation. He sees the best-case scenario as one where stablecoins and CBDCs coexist and complement each other. In cross-border payment use cases, central banks will need to work together on standardization to ensure interoperability and reduce the number of intermediaries required to process a transaction.
Meanwhile, the global adoption of this altcoin industry (stablecoin) will continue to evolve. As a result, we should expect more consumers and small businesses to use stablecoins to send and receive cross-border payments due to affordability and speed of transactions.
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