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The European Union is about to introduce new regulation that could transform the stablecoin landscape. These currencies, designed to maintain a stable value relative to a reference asset, usually the US dollar, today represent an important portion of trading.

With the entry into force of MiCA (Markets in Crypto-Assets), scheduled for the end of June, there are growing concerns about the impact of this legislation on the stablecoins market, valued at 155 billion dollars.

Hugo Coelho, digital asset regulation lead at the Cambridge Center for Alternative Finance, and Mike Ringer, partner and co-lead of the Crypto & Digital Assets Group at CMS, have highlighted the risks of fragmentation that MiCA could bring to the market.

With the new rules, the cryptocurrency community is attentive and concerned about the impacts of these regulations. Dante Disparte, head of strategy at stablecoin issuer Circle, issued a warning on social media, comparing the current situation to the anxiety experienced during the famous “millennium bug” (Y2K) in the year 2000.

Disparte highlighted that unlike Y2K, which turned out to be less catastrophic than expected, MiCA represents a significant and inescapable shift for digital assets in the world’s third-largest economy. Y2K is remembered for the panic and hysteria it generated, despite many of the predicted problems failing to materialize. However, MiCA regulations could have tangible and lasting consequences for the cryptocurrency market.

Stablecoins na Europa

Stablecoins, or electronic money tokens (EMTs), play a crucial role in crypto asset markets. They facilitate cryptocurrency trading, protect investors against volatility and provide guarantees for decentralized applications. Any change to their structures or restrictions on their issuance and supply could have a significant impact on the EU market.

To date, however, the cryptocurrency market appears to have been largely undisturbed by the implementation of MiCA. The aggregate supply of stablecoins stands at $155 billion, up from $127 billion in January. USDT and USDC stablecoins continue to dominate the market, representing more than 90% of the total. However, recent moves by major crypto service providers indicate preparation for regulatory change.

OKX was the first to announce the removal of USDT from its trading pairs, followed by Kraken, which is reviewing its position. More recently, Binance stated that it would restrict the availability of unauthorized stablecoins to EU users on some services. These measures indicate anticipation of the challenges that MiCA may bring.

MiCA Challenges

One of the main points of controversy is the localization requirement for stablecoin issuers. MiCA requires stablecoins to be issued by entities incorporated in the EU and licensed as credit or electronic money institutions. Furthermore, part of the reserves must be located within the EU. This puts foreign issuers, especially those that dominate the market with dollar-denominated stablecoins, in a challenging position.

Issuers could theoretically move to the EU and issue stablecoins from the bloc. But this is unlikely due to stringent requirements that would put them at a competitive disadvantage in other markets.

Another alternative would be to operate with two parallel entities, one in the EU and one outside, to serve different regions. However, this approach faces legal and operational complexities, including the need to maintain fungibility between currencies and ensure that EU customers only hold currencies issued by the EU entity.

However, the issue of regulating stablecoins is not exclusive to the EU. Japan, Singapore and the United Kingdom, for example, also face similar challenges.

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