EU may say au revoir to major stablecoins under MiCA
As the application of the European Union's (EU) Markets in Crypto-asset Regulation (MiCA) draws near, speculation is growing as to how its stablecoin framework will apply to foreign and decentralised issuers.
Adopted by the bloc on 20 April 2023, MiCA is the world's first leading regulatory framework designed to regulate digital assets across the EU. The provisions for stablecoins in MiCA will apply from 30 June 2024, six months ahead of other rules on licensing for crypto wallet provides and exchanges.
As we previously advised, MiCA sets governance and reserve requirements for two types of stablecoins:
crypto-assets that purport to maintain a stable value by referencing the value of one official currency (known as an Electronic Money Token or EMT); and
crypto-assets that purport to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies (known as an Asset-referenced Token or ART).
MiCA's application to NFTs is cocooned in nuance and complexity and its application to stablecoin issuers has caused similar confusion for stablecoin issuers that are preparing to abide by compliance obligations.
Marina Parthuist, head of legal at Binance France, expressed skepticism regarding Binance's ability to comply with MiCA. Speaking to an online public hearing hosted by the European Banking Authority, Ms Parthuist seemed pessimistic about MiCA's application to Binance's stablecoin offerings:
This [MiCA] could have a significant impact on the market in Europe compared to the rest of the world.
and that Binance is:
heading to a delisting of all stablecoins in Europe on June 30.
The striking comments made by Ms Parthuist was quickly doused by Binance CEO Changpeng Zhao who, on X, announced Ms Parthuist's response was taken out of context and that Binance has partners launching in Europe.
MiCA also requires issuers of stablecoins to be EU-based undertakings, a significant compliance hurdle that will affect entities with favourable offshore governance models and/or decentralised entities.
While MiCA does not apply to Australian issuers or entities (insofar as they operate outside of the EU), there is a lesson to be learn with respect to unclear or unnecessarily complex hurdles that impact adoption. This is especially pertinent due to Australia's recent uptick in innovation and development relating to stablecoins by private banks, such as ANZ's exploration of tokenised asset use cases and government departments such as the RBA testing an Australian CBDC.
By Michael Bacina and Luke Misthos