Opinion: MiCA brings regulatory clarity, but restrictions on stablecoins should be appropriately relaxed

Original Title: “MiCA can bring clarity -- but stablecoin restrictions must be revisited”

Author: Jason Allegrante, Chief Legal and Compliance Officer at Fireblocks

Translated by: Felix, PANews

Recently, the stablecoin rules in the EU's Markets in Crypto-Assets Regulation (MiCA) came into effect on June 30, with other provisions expected to take effect in December. MiCA stipulates that stablecoins are prohibited from conducting more than 1 million payment transactions per day or having a daily transaction volume exceeding 200 million euros (approximately 215 million dollars). In response, Fireblocks Chief Legal and Compliance Officer Jason Allegrante published an article criticizing the stablecoin restrictions, arguing that the EU should provide a fertile ground for the thriving development of stablecoins. Below is the full text:

The implementation of MiCA by the EU marks an important milestone in the development of the crypto industry.

As MiCA is phased in this summer, the EU is bringing crypto market participants under regulatory oversight for the first time. While uncertainties and challenges remain in the future, there is hope that MiCA will be an important step in promoting long-term stability in the crypto market, enhancing user protection, and providing a more attractive investment environment for entrepreneurs.

The drafters of MiCA have made correct provisions in many areas. One of them is the recognition that certain activities in the crypto ecosystem (such as decentralized smart contracts and NFTs) do not fully align with existing European financial system regulatory concepts (i.e., MiFID) and are not included under MiCA regulation. Perhaps there is also an understanding that regulators will impose further regulatory constraints on these activities.

However, will imposing such strict restrictions on stablecoins or "e-money" tokens yield positive results?

According to MiCA, certain dollar-pegged "e-money" tokens (including USDT, USDC, and BUSD) are subject to restrictions on issuance and trading. Under EU regulations, these instruments (and certain others) have a daily transaction limit of 1 million transactions or a daily transaction volume limit of 200 million euros.

The imposed limits are not only too small to support the current market levels but could also cause significant disruption to the normal functioning of the crypto ecosystem.

Currently, the total market capitalization of stablecoins has reached an astonishing 162 billion dollars. USDT, USDC, and BUSD together account for about 75%. The share held by Europe has already exceeded the limits set by MiCA, meaning that once implemented, immediate action will almost certainly be required to restrict the use of stablecoins.

The importance of all this lies in the fact that stablecoins have become an indispensable part of realizing many key use cases (especially non-speculative ones).

Importantly, stablecoins serve as a bridge between traditional finance and digital assets. As a reliable store of value for investors, stablecoins provide a safe haven away from highly volatile assets. This is in stark contrast to the perception of a "crypto casino."

It has been proven that stablecoins are crucial in cross-border payments. They can protect those facing hyperinflation or devaluation of their national currency. Stablecoins are also frequently used to interact with smart contracts and are a core component of lending and yield generation systems.

Restricting such a thriving area within the digital asset ecosystem could potentially contradict one of the EU's regulatory intentions: to cultivate a vibrant and innovative industry in Europe.

Compared to other jurisdictions that have not implemented such measures, the e-money restrictions could also put Europe at a disadvantage. While these restrictions may aim to protect the euro and mitigate potential systemic risks arising from the widespread use of stablecoins, excessive limitations will stifle the growth and adoption of stablecoins and have significant adverse effects on EU stablecoin issuers and users.

For these reasons, European authorities must revisit the restrictions on e-money.

Given that the European Securities and Markets Authority, the European Banking Authority, and other European regulators are involved in the formulation of secondary rules and technical standards, there is hope for some amendments to MiCA. For example, authorities could adopt a more nuanced tiered system to adjust limits based on the size and duration of the issuer.

Regardless of the approach taken, it should improve the current situation and promote a better balance between the market and regulation.

As the author has stated on other occasions, stablecoins are one of the "weapons for mass adoption" in the digital asset industry. These products and services, such as ETFs and stablecoins, can enter consumers' lives and provide them with positive experiences of blockchain technology at a very low threshold. Stablecoins meet this requirement in multiple ways. As a product provided by regulatory authorities, stablecoins serve as a window for banks and other financial issuers. In the process of being used by consumers, stablecoins are the perfect tool for enabling Web3 commerce and smart contract interactions—often seamlessly integrated as part of games or other online environments.

Although stablecoins are beneficial for consumers, they also involve issues related to monetary policy, sovereign debt issuance, and global soft power export competition. The cautious approach of European regulators is correct, but it should not come at the expense of critical technologies within the entire crypto ecosystem. If the digital asset market is to thrive under MiCA in Europe, stablecoins must be provided with conditions for robust growth.