The implementation of the Markets in Crypto-Assets (MiCA) legislation in the European Union has raised concerns about stifling crypto adoption due to the daily transaction caps imposed on stablecoins. The controversial measure places a cap of $216 million (200 million euros) on private stablecoin transactions, such as Tether (USDT) and USD Coin (USDC). Legal experts from global law firm Clyde and Co have argued that these transaction limits could hinder the use of stablecoins and are urging regulators to reconsider.
Stablecoins were introduced as a solution to address the price volatility of cryptocurrencies by mirroring the value of fiat currencies, primarily the U.S. dollar. However, recent incidents such as the collapse of Terra’s algorithmic stablecoin UST and the de-pegging of USDC after Silicon Valley Bank’s collapse have increased regulatory scrutiny on private stablecoins. Regulators are concerned about the potential impact of the failure of a large stablecoin, given their closer ties to the traditional financial system through reserves.
While the 200 million euro cap is not considered a complete ban, exceeding this threshold would require issuers to halt further activities and collaborate with regulators to bring transactions under the cap. Nonetheless, legal experts argue that the increasing popularity of private stablecoins could result in limited usage due to the current rules, potentially leading to the accelerated development of central bank digital currencies (CBDCs).
The lawyers acknowledge that MiCA lawmakers are likely aware of the negative consequences these regulations could have, particularly when compared to more permissive jurisdictions for stablecoin use. They emphasize that if other jurisdictions allow unrestricted stablecoin usage, it could negatively impact the crypto market in the EU.
Despite facing criticism, MiCA has received a generally positive response from the crypto industry, with experts highlighting the potential benefits for startups and smaller entities in terms of market access, innovation, and competition. However, they also emphasize that adjustments may be necessary to optimize the legislation’s effectiveness.
Tether’s chief technology officer, Paolo Ardoino, expressed the need for continued discussion and potential revision of the MiCA framework before its implementation for private stablecoin providers. While acknowledging the impact of daily trading caps on stablecoins like USDT, he commended MiCA as a comprehensive initiative within the industry.
The success of MiCA will depend on how it is enforced at the member-state level and whether lawmakers will keep it under review, considering the rapid pace of innovation in the crypto industry. The legislation is expected to be implemented following its publication in the Official Journal of the EU, with regulations and guidelines for crypto firms anticipated to take effect in 2024.
Overall, concerns remain regarding the potential stifling of crypto adoption due to MiCA’s transaction caps on stablecoins. The impact of these regulations, their enforcement, and ongoing reviews will significantly shape the future of stablecoin usage and the overall crypto market in the European Union.