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The MiCA (Markets in Crypto-Assets) is a legal framework established by the European Union to govern digital assets. Its aim is to create clear and uniform rules in the cryptocurrency sector, in order to protect users and ensure financial stability. Among the assets concerned, stablecoin occupy a central place. Why? Because they have become a cornerstone of digital finance by enabling fast and stable transactions while replicating the value of fiat currencies. However, their widespread adoption can also pose risks if it is not properly regulated, particularly in cases of a lack of transparency or insufficient reserves.
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What is a stablecoin ?
A stablecoin is a cryptocurrency specifically designed to maintain a stable value. This stability is typically ensured by backing it with a reference asset fiat currency (e.g., the dollar or the euro) or tangible assets like gold. Unlike other cryptocurrencies, stablecoins stablecoin not subject to significant price fluctuations, making them ideal for payments or storing value. Some well-known examples include:
- USDT (Tether) and USDC (Circle) are indexed to the US dollar.
- EURC ( Euro Coin by Circle) , linked to the euro.
The three main categories of stablecoin
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Collateralized fiat currencies (backed by fiat currencies):
These stablecoin are directly backed by traditional currency reserves (such as the dollar or the euro). Each unit of stablecoin is guaranteed by an equivalent unit of fiat currency deposited in a bank or reserve account.- Example: USDT (Tether), USDC (USD Coin), and EURC (Euro Coin).
Why is this important? These stablecoin offer great stability because their value depends directly on tangible assets.
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Crypto-collateralized (backed by cryptocurrencies):
These stablecoin are guaranteed by cryptocurrency reserves, often oversized to compensate for their volatility. For example, 1 DAI might be backed by 1.5 times its value in ETH ( Ethereum ) to maintain its stability.- Example: DAI on the Ethereum .
How does it work? These stablecoin use smart contracts to automatically manage collateral and adjust their supply.
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Algorithmically based,
these stablecoin are not backed by reserves of real assets. They maintain their value through algorithms and automated mechanisms, such as adjusting the circulating supply. For example, if the price of a stablecoin exceeds $1, the system issues new tokens to lower the price.- Example: Terra's UST (which failed in May 2022).
The problem? These stablecoin are riskier because they rely on user trust in the algorithm. The collapse of UST demonstrated their vulnerability.
MiCA : Definition and objectives of the regulation
Before the implementation of MiCA (Markets in Crypto-Assets) , cryptocurrency regulation in Europe was fragmented. Each member state applied its own rules, creating legal uncertainty for businesses and investors. Some jurisdictions had favorable laws, while others imposed severe restrictions, making it difficult to achieve harmonized development of the crypto sector within the European Union.
MiCA marks a turning point by offering a unified legal framework for all cryptocurrency stakeholders in Europe, whether they are token issuers, service providers, or investors. This regulation pursues several objectives:
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Protecting consumers
MiCA stablecoin and accountability from issuers and service providers.
A concrete example: Stablecoins must be backed by robust reserves and allow for prompt redemption upon request. - Ensuring the stability of financial markets:
With the increasing adoption of cryptocurrencies, instability in this sector could have repercussions on the traditional economy. MiCA imposes control mechanisms to prevent market manipulation, abuse of privileged information, and systemic vulnerabilities.
A systemically important stablecoin is stablecoin used extensively in the economy (such as for payments, settlements, or international transfers). If this stablecoin were to lose its stability or encounter major problems (such as issuer bankruptcy or a collapse in confidence), it could disrupt not only the cryptocurrency market but also the traditional financial system.
Such an incident could cause a liquidity crisis (with users massively seeking to withdraw their funds), payment problems between institutions , or a widespread loss of confidence in digital assets.
What obligations does the MiCA regulation impose on stablecoinissuers?
The MiCA regulation imposes strict requirements on stablecoin to ensure user safety and trust. Here are the main obligations:
Mandatory license : Issuers must obtain a license as a credit or electronic money institution. This allows them to demonstrate that they meet high standards of management and security.
Enhanced transparency : Issuers are required to publish a white paper detailing the stablecoin , associated risks, and user rights. Any inaccurate information in this document may result in liability.
Fund and reserve management :
- Funds received from users must be invested in safe and low-risk assets, for example government bonds.
- These funds must be kept separate from the issuer's other assets and deposited in a separate account at a financial institution.
Guaranteed refund stablecoin holders must be able to convert their tokens into fiat currency at any time and at par (e.g., 1 stablecoin = 1 euro). This includes clear refund procedures in the event of project dissolution or financial difficulties.
Contingency plans : Issuers must establish recovery and repayment plans to anticipate and manage potential financial failures.
Classification of important stablecoin : stablecoin of "significant importance," identified by criteria such as the number of users or the total value issued, are subject to even stricter requirements. These projects are placed under the supervision of the European Banking Authority (EBA).
Requirements for service providers : Platforms offering stablecoin must:
- Adhere to high standards of integrity, professionalism and transparency.
- Protecting users' funds and crypto-assets by keeping them separate from company assets.
- Implement measures against money laundering and terrorist financing.
Challenges for the crypto market in the face of MiCA
The MiCA regulation imposes significant compliance costs on crypto-asset issuers. These costs are linked to several obligations:
Obtaining a license : Issuers must comply with licensing requirements in an EU member state. This includes complex and costly administrative procedures, such as verification of financial soundness and legal compliance.
Publication of a white paper : MiCA requires issuers to publish a detailed white paper describing the project, its risks, and its operating mechanisms. Creating this document often requires the involvement of legal, technical, and financial experts.
Maintaining reserves and guarantees : stablecoin must be backed by sufficiently robust reserves to guarantee their stability. This means that issuers must allocate substantial funds to cover the commitments linked to the tokens, thus tying up capital.
Regular audits and reporting : MiCA requires regular evidence of transparency and fund management. This involves frequent external audits and the implementation of sophisticated management and monitoring systems.
Risk management and consumer protection : Issuers must develop mechanisms to prevent conflicts of interest, secure user funds, and manage complaints. This infrastructure represents a investment , especially for small businesses.
These requirements, while useful for strengthening trust in the crypto market, could stifle innovation. Small issuers with limited resources risk being excluded from the market. Furthermore, algorithmic stablecoin, which do not meet the reserve requirements imposed by MiCA, could disappear in their current form.
The implications of MiCA regulations on stablecoin
MiCA 's stringent requirements have significant repercussions for existing stablecoin, imposing clear rules on transparency and financial guarantees. For example, popular stablecoinlike Tether'sUSDT , PAX, PYUSD , and even MakerDAO's DAI do not currently fully comply with MiCA's required standards, particularly regarding regular proof of reserves backed by real assets and transparency in financial reporting.
These non-conformities have prompted platforms like Coinbase to delist these stablecoinwithin the European Union. In particular,USDT, long criticized for the opacity of its reserves, does not meet the new requirements. Conversely, compliant stablecoin, such asUSDC, which already meet the transparency and guarantee criteria imposed by MiCA, could gain a competitive advantage by becoming the preferred assets of platforms and users in the EU.
Why are non-compliant stablecoinlikeUSDT and DAI still widely used?
Although some MiCA specific rules relating to stablecoinhave already been in effect since June 30, 2024, their strict application depends on several factors:
1. Periods of transition and gradual adjustment:
stablecoinissuers and platforms need time to comply with MiCA 's complex requirements (guaranteed reserves, transparency, at-par redemption, etc.).
The European Union has not yet fully implemented controls and sanctions for non-compliant actors. This transition phase allows projects and platforms to adapt.
2. A complex task for regulators:
Strict enforcement of MiCA rules requires considerable resources, particularly to monitor the thousands of crypto and stablecoinprojects in circulation.
Many issuers and platforms are still negotiating with regulators to clarify their status or adapt their practices.
3. Temporary laxity to avoid market disruption:
USDT, for example, is the most widely used stablecoin in the world. An immediate ban could disrupt crypto markets in Europe and harm users. Regulators are therefore taking a gradual approach to avoid a shock.
So, what will happen once MiCA is fully implemented?
Starting December 30, 2024 , strict monitoring of platforms and issuers will begin. At that time:
- European crypto platforms will have to remove from the list (delist) all stablecoin MiCA rules .
- Stablecoins like USDT or DAI stablecoin cannot prove that they meet the requirements, could be USDT from the European market .
This explains why platforms like Coinbase are already anticipating these changes, by delisting stablecoin that may not be compliant, such as USDT , DAI , PAX , and PYUSD .
Conclusion: MiCA, a regulation for the future of stablecoin
The MiCA regulation marks a major turning point for stablecoinin Europe, offering a clear and harmonized legal framework. This regulation aims to strengthen user and investor confidence while ensuring greater transparency and security in the market.
However, these strict rules are not without consequences: they could stifle innovation and exclude certain projects, particularly algorithmic stablecoin, that do not meet the imposed criteria. Nevertheless, this approach aims to protect consumers and prevent systemic crises that could affect the entire economy.
To learn more, click on the bold words to discover our articles on euro stablecoin and which stablecoin to choose according to your preferences.
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Yoann
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
