MiCA and stablecoins: a new stage of regulation
MiCA: New Rules for Stablecoins
In June 2023, the European Union published the MiCA (Markets in Crypto-Assets) regulation, which entered into force shortly after publication; most of its provisions began to apply on June 30, 2024. MiCA established rules for the cryptocurrency market, including strict requirements for stablecoin issuers. This event became a historic step for the industry, setting new standards for transparency, financial stability, and user protection. Simultaneously, the growth of the Euro-stablecoin market has drawn attention to the potential risks associated with their use.
Transparency and Reserving
MiCA introduces strict requirements for the reserving and disclosure of information by issuers of stable tokens, though these vary depending on the token type. For e-money tokens (e-money stablecoins) aimed at maintaining a 1:1 parity with a fiat currency, full reserving and appropriate reserve management measures are required. For asset-referenced tokens (ART), requirements are provided for reserves, asset diversification, risk management, and transparency, but they do not always imply a simple 1:1 backing in cash. Issuers are obliged to provide regular reports, disclose information on reserve compositions, and undergo independent audits in accordance with the regulation.
AML/KYC as a Foundation for Security
MiCA strengthens the requirements for crypto-asset service providers (CASPs) and issuers regarding anti-money laundering and countering the financing of terrorism, specifically requiring the implementation of AML/CFT and KYC procedures in accordance with the pan-European anti-money laundering framework. At the same time, issues of full AML/KYC practice intersect with separate EU AML/CFT acts; MiCA establishes obligations for market participants and service providers but does not abolish or replace existing pan-European anti-money laundering rules.
Increasing Trust in Euro-Stablecoins
According to reports from several analysts, the capitalization of Euro-stablecoins grew significantly in the year following the application of MiCA, and monthly transaction volumes also increased. The most recognizable and liquid Euro-stablecoins remain EURS (Stasis) and EURC (Circle); other Euro-tokens also exist, including historical or local initiatives (for example, EURt from certain issuers).
However, despite positive trends, Euro-stablecoins still lag behind the largest dollar stablecoins in terms of market capitalization. The combined capitalization of leading dollar stablecoins (such as USDT and USDC) remains significantly higher, at the level of hundreds of billions of dollars (analyst estimates for 2024–2025 point to approximately the mid-point of the second hundred billion dollars combined), making dollar stablecoins the dominant market segment.
Key Risks for Users
Liquidity and Concentration
The Euro-stablecoin market remains relatively small, which can lead to liquidity issues, especially during large transactions. Market concentration among a few issuers, such as Stasis (EURS) and Circle (EURC), creates additional systemic risks.
Regulatory and Operational Risks
Issuers may change the terms of token issuance or suspend their listing on platforms if they do not meet the requirements of MiCA or related regulatory acts. This could lead to access restrictions for users and a loss of liquidity.
Security Threats
Insufficient transparency of reserves for some issuers increases the risk of the token losing its value. It is also important to consider that AML/CFT requirements may lead to the blocking of addresses and the restriction of transactions associated with suspicious or sanctioned activities.
How to Protect Yourself: Practical Advice
For Users
- Check Issuers: Ensure that the issuer complies with MiCA requirements and provides regular reports and independent audits of reserves.
- Diversify Assets: Do not hold all funds in a single stablecoin or a single currency. Divide your portfolio between Euro and dollar tokens.
- AML Verification: Before transferring funds, check addresses for sanction labels using blockchain analysis services such as GoPlus and other similar tools.
- Assess Liquidity: Study market depth and potential slippage on exchanges.
For Businesses
- KYC/AML Integration: Implement user verification and transaction monitoring systems in accordance with MiCA and pan-European AML requirements.
- Collaboration with Banks: Use reliable on/off-ramp partnerships to ensure liquidity.
- Risk Management: Plan actions for a liquidity crisis, including multi-currency reserves.
Conclusion
MiCA has opened a new era for crypto regulation in the European Union, leading to increased trust and popularity for Euro-stablecoins. However, users and businesses must account for new risks related to liquidity, concentration, and regulatory burden. To minimize threats, it is vital to choose reliable issuers, use AML/KYC tools, and regularly verify token reserves.
Recommended reading:
The Impact of MiCA on Crypto Regulation in Poland.