In an exclusive report by crypto.news, Natalia Latka, the Policy Director at Merkle Science, explores the potential impact of the Markets in Crypto-Assets Regulation (MiCA) on USDT and other stablecoins within the EU.
OKX, a prominent global crypto exchange, recently made headlines by delisting all USDT trading pairs to comply with MiCA, which is slated to come into effect in June. This move has sparked considerable speculation regarding how other major exchanges will respond.
MiCA introduces a regulatory framework that mandates licensing for crypto-asset service providers (CASPs), issuers of asset-referenced tokens (ARTs), and issuers of electronic money tokens (EMTs). It imposes stringent obligations, including consumer protection rules covering issuance, trading, exchange, and custody of crypto-assets.
Furthermore, MiCA establishes a market abuse regime to prevent market manipulation and insider trading. It also defines the powers, cooperation mechanisms, and sanctions framework for competent authorities. Under MiCA, only authorized legal entities with established EU offices can provide crypto-asset services. Significant CASPs, ART issuers, and EMT issuers face enhanced scrutiny and regulatory requirements due to their potential impact on financial stability and consumer protection.
To simplify this intricate landscape, crypto.news reached out to Natalia Latka, an expert in crypto compliance and financial crime, to shed light on the implications for USDT.
**How will MiCA impact USDT?**
Natalia Latka: Tether, classified as an EMT, must comply with specific MiCA criteria for EMT issuers. This entails obtaining authorization as either an electronic money institution or a credit institution. Given Tether’s primary base outside the EU, compliance involves establishing a recognized EU entity, setting up an office in an EU member state, and ensuring effective EU-based management. Tether would then seek authorization as an Electronic Money Institution (EMI) or credit institution.
Due to USDT’s substantial market cap and user base, additional complexities arise. It would likely be categorized as a significant electronic money token, necessitating compliance with stricter requirements to ensure financial stability. This includes meeting higher capital standards, adhering to interoperability norms, and developing robust liquidity management strategies.
Therefore, for Tether to continue operating in the EU, it must navigate a complex legal and regulatory pathway.
**What limitations will stablecoins face in the EU?**
Natalia Latka: Authorization as a significant EMT issuer indicates the ability to handle larger transaction volumes before triggering regulatory actions such as issuance halts. However, the operational implications for issuers approaching or surpassing these thresholds depend on individual circumstances.
MiCA imposes restrictions on stablecoins denominated in non-EU currencies through Article 58(3). Issuers must cease issuance if transactions in a single currency exceed 1 million in volume or EUR 200 million daily, necessitating strategies to reduce their crypto-assets’ use. Tether remains subject to these limitations.
To comply, Tether must carefully analyze MiCA’s regulations, particularly defining “transactions” and “means of exchange.” Insights from the EBA’s November 2023 consultation are crucial. Despite potential exemptions, Tether may exceed these limits, impacting its EU legality.
**How will OKX’s delisting of USDT impact the broader EU crypto market?**
Natalia Latka: OKX’s decision could signal broader changes in Europe. Other exchanges might follow suit by delisting or restricting stablecoins that fail to comply with MiCA, anticipating regulatory scrutiny or aligning with the new legal framework. This shift could marginalize non-compliant tokens or push their issuers toward compliance.
While MiCA is a regional regulation, its implications could reverberate globally. Non-EU stablecoin issuers may adjust operations to access the European market, influencing global standards. Nevertheless, MiCA’s stringent requirements may also dampen the willingness of stablecoin issuers to serve the EU market.
Market reactions to MiCA’s implementation might spur adoption of alternative stablecoins. Euro-denominated EMTs could gain popularity, but replacing USD-pegged stablecoins in trading pairs seems unlikely in the near term due to market dynamics and the entrenched dominance of USD-referenced stablecoins.
For more insights, visit crypto.news.
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