Stablecoin lists in Europe for crypto exchange, issuers write change

When the world's fourth largest cryptocurrency exchange delists the leading stablecoin for the entire continent, it raises eyebrows.

But this may just be a harbinger of things to come.

Europe's path-breaking markets expect further disruptions when the Crypto-Assets Regulation (MiCA) comes into effect at the end of June.

Offshore stablecoins are especially likely to face challenges. But in the long run, MCA should provide a secure and robust ecosystem for stable coin issuers and users, sources recently told Cointelegraph.

As reported, Seychelles-based crypto-exchange OKX has canceled Tether (USDT) trading pairs ahead of the MCA for users in the European Economic Area (EEA). “Going forward, only EUR and USDC trading pairs will be accessible for spot trading,” OKX said in a customer support message.

A changing landscape

Market watchers were less alarmed by the news. Christian Catalini, founder of the Massachusetts Institute of Technology's Cryptoeconomics Lab, said he was “not at all surprised by the cancellation.” By new players – many of them started in crypto and not companies coming from traditional banking and fintech.

As for the OKX news, Arvin Abraham, a partner at UK-based law firm Goodwin Proctor, expects the same. He tells Cointelegraph:

“Post-MiCA [i.e., after June 30]If the stable coin is no longer in demand, we can expect exchanges to drop exchanges from European customers.

Since none of the world's largest cryptocurrencies are European, in the EEA, at least, one can “see a significant change of landscape following the implementation of MiCA,” Abraham pointed out. If some of the current leaders cannot, or will not, comply, they may have to kneel.

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“MiCA, Strict Requirements for Both E-Money Tokens and Asset References”. [i.e., two forms of stablecoins in the new MiCA lexicon] It will undoubtedly affect stablecoin offerings in the EU, Jean-Baptiste Grafteau, global CEO of French cryptocurrency exchange Bitstamp, told Cointelegraph, adding: “We are closely monitoring developments in this area.”

The challenge for stablecoin issuers is that they must now be part of the EEA and be licensed as an electronic money institution in the EEA. Graftieaux added, “This is problematic for existing stablecoin issues, and the time is now very short, with June 30, 2024 being the deadline to meet the new regulatory requirements.”

Hard work for stable offshore coin collectors?

“For non-Europeans [stablecoin] For issuers, the requirement to establish and authorize a legal entity in an EU member state is a very special expense,” said Abraham. But offshore providers aren't the only ones facing challenges.

“For all issuers, significant additional burdens come from the requirement to maintain 1:1 inventory to cover claims. granting token holders permanent redemption rights; And for stotocoins worth more than 100 million euros to submit quarterly reports to their EU country regulators, Abraham added.

Jon Helgi Ellison, founder and chairman of Monerium, a company that issues compliant on-chain fiat stablecoins in Europe, and former chairman of the supervisory board of the Central Bank of Iceland, told Cointelegraph that most of the stablecoins offered in Europe today are not compliant. Not to mention the current electronic money regulations – due to MiCA which will be implemented on June 30.

“The electronic money directive has been in place in Europe for over 20 years,” Ellison said. “Why do you have a stable coin market with one set of companies and one set of unruly companies? That's not fair,” he said.

Still, he noted, it could be “too expensive” for some stable coin issuers to come into compliance. With MiCA, fiat-backed stablecoin issuers must not only maintain a 1:1 ratio of liquidity reserves, but also split the user's funds, meaning the customer has a claim on the original funds, not the company,” Ellison said.

Compliance requirements will be greater for large market raters. “Currently [pre-MiCA] Regulation and Act, there is no difference between issuer rates,” Ellison said.

The same rules apply to small and large issuers. However, the MCA distinguishes between “significant” issuers and “non-significant” issuers. “If you're a ‘significant' issuer, you should set aside more of your own equity than the potential losses,” Ellison says.

Will there be further changes from offshore suppliers?

“The impact of the regulation may cause some challenges for those working in international markets,” said Graftieaux. “For example, it may raise compliance costs, market entry barriers and conflict with other territorial governance frameworks, leading to policy fragmentation.”

“Tether is the most popular stable coin globally today and it will have a significant short-term disruptive impact on the market,” Abraham said.

However, in the long term, “other stablecoins will fill the gap, and the ecosystem will arguably become safer as these coins comply with MiCA's strict consumer protection and due diligence protections.”

Crypto exchanges may also have to adapt. “Some exchanges require a stablecoin as an intermediate medium of exchange before it can be used to buy fiat crypto or trade between two crypto assets,” Abraham said. Those stablecoins may not be available anytime soon, at least for European customers.

Setting an example for crypto markets

Still, Graftieaux emphasized the long-term benefits for investors and markets in general. “By focusing on market integrity and investor protection, these regulatory standards will set an example for other markets, which, if followed, will increase investor confidence.”

The MiCA framework has already had an impact in the UK, Graftieaux added, where the government's commitment to digital assets is widely seen as “a clear strategic move to lead the global regulatory standard alongside the EU.”

Graftieaux takes issue with those who say the MCA could stifle crypto and blockchain innovation in EU countries. “While innovation plays a vital role in the industry, the importance of market stability cannot be overstated.”

Ultimately, the new framework “acknowledges the revolutionary potential of blockchain technology and strikes a balance between providing legal transparency and certainty,” he continued. Moreover, “this agreement promotes cross-border innovation through seamless cooperation between EU governments.” Graftieaux told Cointelegraph:

“This diffusion of ideas will continue to drive technological innovation – just like a strong set of rules.”

Indeed, some on the continent see the MCA as providing an opening for a new generation of stablecoin providers.

“We cannot predict the market's reaction, but one thing is certain: the MCA is a real opportunity for a stable coin for Europe and the euro,” Jean-Marc Stenger, CEO of France's Societe Generale-Forge, told Cointelegraph.

“The European market is dynamic, with a large, mature and sophisticated investor base. In the long term, all the conditions are set for a move towards a stable coinage of the euro and the dollar.

Overall, with their focus on market integrity and investor protection, the new EU crypto regulations could set an example for other markets – after some short-term pain. The stablecoin sector could see some new entrants to challenge the dominance of dollar-backed stablecoins.

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“While the MCA is not perfect, it provides a starting point for strong, stable coin control. “It is much better than the current situation in the US, where there is no regulatory transparency and new rules are needed to deliver safe and sound stablecoins to consumers and businesses,” Catalini said.

“Once there's transparency, we'll know which stablecoins are here to stay and which ones can address real consumer and business needs at scale.”