The European Union’s landmark crypto-currency law has already been approved, but technical details still need to be worked out.
Blockchain for Europe and the Digital Euro Association sent a letter to the EU Council this weekend in an attempt to reverse controversial rules that would have the effect of stifling any major stable currency project linked to anything other than the euro.
According to the crypto-currency industry, MiCA places restrictions on the issuance and use of stablecoins that are not denominated in euros or another official currency of an EU member state.
This could potentially ban Tether’s USDT, Circle’s USD coin and Binance’s USD binance, which account for a huge portion of global crypto trading volumes.
“The three largest stablecoins by trading volume are likely to be banned in the EU from 2024, due to quantitative limits on the issuance and use of EMTs [jetons de monnaie électronique] denominated in foreign currencies under MiCA“, the two associations argue in the letter.
“Restricting their use in the Eurozone would cause the crypto markets here to seize up, with potentially destabilizing effects and a significant leakage of crypto activity out of the EU.“
If MiCA is implemented as is, the groups believe there could be “extreme short-term price volatility, driven by dislocation effects“, as well as higher prices and weaker competition in the developing digital asset sector. The result would be a “brake“to innovation in the EU, they said.
The two associations are seeking clarification from the legislature, arguing that any limitation on foreign currencies should be very narrow in scope.
In particular, they asked for specific definitions for “uses as a medium of exchange“under MiCA to protect the role of stable currencies referenced in USD in crypto-currency trading and in providing liquidity to DeFi pools (decentralized finance).
Patrick Hansen, European policy expert and Crypto Venture Advisor at Presight Capitalwho supports the joint letter, wrote on Twitter that bringing clarity “is also in the EU’s interest, as it wants these issuers to seek a license“, which too broad a scope would deter.
The MiCA restriction of non-euro stablecoins used for payments should be clarified & very narrow in scope.
This is in the EU’s interest too as it wants these issuers to seek a licence (a broad scope would disincentivize). https://t.co/tsKnEBIeAt
– Patrick Hansen (@paddi_hansen) August 20, 2022
Stable currencies pegged to the euro are not about to compete with USD-backed currencies
For now, European crypto-currency investors can’t rely on euro-dominated stablecoins, as they represent only a small share of trading volumes.
“It is unrealistic to expect them to [les investisseurs] replace USD-referenced stablecoins in crypto exchanges, let alone do so seamlessly by January 2024“, the associations wrote.
According to a report published in June by the European Central Bank on the international role of the euro, the share of this currency in the crypto-currency markets is “extremely low”, just 0.2%.
Euro-based stablecoins are therefore less liquid and “tend to be sold in a manner similar to other risky assets rather than behaving as a vehicle in digital transactions and exchanges“.
Circle’s latest stablecoin issued in euros, the euro coin (EUROC), launched in June, has given market participants some confidence in a major stablecoin pegged to the euro, even if it is unclear when it will be commonly used.
Currently, EUROC has a market capitalization of just $76 million, according to CoinGecko data, ranking it as the 320th largest token. For comparison, USDT, denominated in dollars, is the third largest crypto-currency in terms of market value, with over $67.5 billion.