Opinion The Deficiencies in MiCAs AllInclusive Crypto Manifesto
Disclaimer: The author’s opinions expressed in this article are their own and do not reflect the views and opinions of the editorial team at crypto.news.
In April 2023, the European Union introduced a groundbreaking piece of legislation to regulate the crypto and blockchain industry. The Markets in Crypto-Assets Regulation (MiCA) aims to establish a unified regulatory framework for the industry, providing clearer laws for crypto asset service providers and token issuers.
MiCA has been hailed as a significant milestone in crypto regulation, particularly for its provisions addressing stablecoins. Stablecoins have long posed challenges in terms of classification and their use in cross-border transactions. Recently, Circle, the issuer of the USDC stablecoin, became the first stablecoin issuer to be officially recognized as compliant under the EU’s crypto legislation.
This recognition of Circle’s status has sparked discussions about the impact of MiCA on the $160 billion stablecoin market and the broader crypto and web3 economy.
While the main goal of MiCA is to protect investors by holding organizations accountable for issuing digital assets and providing services, as well as to foster innovation and ensure competition, it will take time to fully assess its impact.
MiCA was born out of concerns raised by the wave of ICOs in 2017 and 2018, which highlighted potential scams, fraud, and manipulations that could threaten financial stability within the European Union. After extensive research and careful consideration, MiCA deserves credit for striking a balance between regulation and innovation, recognizing the technological and business advantages of crypto and blockchain. Furthermore, MiCA enhances stability, investor confidence, transparency, and oversight through its comprehensive legal framework.
However, MiCA does have some limitations. While it acknowledges the importance of bridging crypto asset service providers and traditional finance, it falls short in providing guidance on how to achieve that. The increasing intersection of traditional finance and digital assets has the potential to drive adoption and contribute to the maturation of the crypto ecosystem. However, MiCA imposes restrictions on stablecoins that may hinder these developments.
Non-Euro-pegged stablecoins are prohibited from being used in transactions for goods and services and face daily limits on the number of transactions (up to one million) and their total value (€200 million). This places usage restrictions on leading stablecoins like USDC and USDT, even if they are certified as MiCA compliant.
Since stablecoins play a crucial role in facilitating transactions, enabling DeFi, and driving innovation across the industry, these limitations could impact liquidity and disrupt innovation and DeFi activities, undermining one of MiCA’s core objectives.
Furthermore, MiCA does not prioritize interoperability, which is a pressing need in the industry. It also does not seem interested in promoting crypto-fiat payment solutions, which are key for enhancing liquidity and sparking innovation beyond the crypto realm.
While it is too early to fully grasp the implications of MiCA’s approach to stablecoins, European regulators can do more to address interoperability and cross-ecosystem payments to future-proof their economy and prevent market fragmentation. Collaboration with EU organizations like Horizon Europe and the European Innovation Council can help identify innovative startups that can fill the gaps left by MiCA.
For instance, Kima, a peer-to-peer money transfer and payment protocol that is asset-agnostic, offers an interoperable settlement layer for interchain and crypto-fiat transactions. By removing barriers between blockchains and traditional financial instruments, Kima’s protocol enables developers to access greater liquidity. This benefits both non-crypto native users and financial institutions by facilitating the flow of funds in all directions.
MiCA will undoubtedly set the standard for crypto regulation, guiding other nations and economic blocs on how to regulate a rapidly growing, complex, and volatile market that holds great promise. However, it is important for the EU to not overlook other aspects that impact the industry’s growth while seeking to protect its monetary interests.
The EU has demonstrated a willingness to adapt and study emerging trends. In the fast-paced world of crypto, this is crucial to ensure appropriate measures are taken to protect investors and the integrity of the industry as a whole.
Read more: KYC and AML in MiCA rules: how will crypto change in 2025?
