Can MiCA regulation dethrone Tether from its EU supremacy
In an exclusive report by crypto.news, Natalia Latka, Policy Director at Merkle Science, explores the potential impact of the Markets in Crypto-Assets Regulation (MiCA) on USDT and other stablecoins within the EU.
OKX, one of the world’s largest crypto exchanges, recently made headlines by removing all USDT trading pairs to ensure compliance with MiCA, scheduled to come into effect in June. This move has sparked speculation about how other major exchanges will respond.
MiCA introduces licensing requirements for crypto-asset service providers (CASPs), issuers of asset-referenced tokens (ARTs), and issuers of electronic money tokens (EMTs). It mandates detailed regulatory obligations, including consumer protection rules, for activities involving issuance, trading, exchange, and custody of crypto-assets.
Additionally, MiCA establishes a market abuse regime to prevent manipulation and insider trading. It defines the powers, cooperation mechanisms, and sanctions framework available to regulatory authorities. The regulation stipulates that only authorized legal entities with established EU offices can provide crypto-asset services. Significant providers and issuers face heightened scrutiny and stricter regulatory demands due to their potential impact on financial stability and consumer protection.
To gain insights into these complex developments, crypto.news spoke with Natalia Latka, a leading figure in crypto compliance and financial crime at Merkle Science.
**Impact of MiCA Regulation on USDT**
*Natalia Latka:* Tether, classified as an EMT under MiCA, must comply with specific criteria for EMT issuers. This involves seeking authorization either as an electronic money institution or a credit institution within the EU. For Tether, headquartered outside the EU, compliance necessitates establishing a recognized entity within the EU, setting up an office in a member state, and ensuring effective EU-based management. Subsequently, Tether must apply for authorization as either an Electronic Money Institution (EMI) or a credit institution.
Due to USDT’s substantial market cap and user base, additional complexities arise. It is likely categorized as a significant electronic money token, subjecting it to stricter requirements such as higher capital thresholds, interoperability standards, and robust liquidity management policies. Hence, Tether faces a rigorous legal and regulatory pathway to continue operating within the EU.
**Limitations for Stablecoins Operating in the EU**
*Natalia Latka:* Authorization as a significant EMT issuer allows handling larger transaction volumes before facing regulatory intervention, such as halting further issuance. However, the operational implications for significant EMT issuers exceeding these thresholds depend on individual circumstances.
MiCA imposes restrictions, particularly under Article 58(3), for stablecoins denominated in non-EU currencies. These constraints trigger when transactions exceed EUR 1 million in volume or EUR 200 million daily, compelling issuers to cease issuance and strategize for reduced crypto asset usage. Tether remains subject to these limits, necessitating careful analysis of MiCA’s definitions and implications, especially following the EBA’s November 2023 consultation.
**Impact of OKX’s Delisting Decision on the EU Crypto Market**
*Natalia Latka:* OKX’s delisting of USDT could herald broader changes across Europe, as other exchanges might follow suit to align with MiCA or preempt regulatory actions. This shift could marginalize non-compliant tokens or prompt their issuers to seek compliance.
While MiCA is a regional regulation, its global implications are profound. Non-EU stablecoin issuers may adapt their operations to access the European market, influencing global standards for stablecoin regulation. Nevertheless, stringent MiCA requirements could also deter stablecoin issuers from serving the EU market.
Market reaction to MiCA’s implementation might drive increased adoption of alternative stablecoins, particularly those pegged to the Euro. However, replacing USD-pegged stablecoins in trading pairs or achieving comparable trading volumes in the short term seems improbable, given the entrenched dominance of USD-referencing stablecoins.
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