The European Union (EU) recently introduced the Markets in Crypto-Assets (MiCA) legislation, providing comprehensive regulatory guidance on cryptocurrencies. While the law has been largely applauded by the crypto industry, concerns have emerged regarding the impact of daily transaction caps on stablecoins, such as Tether (USDT) and USD Coin (USDC). Experts suggest that these caps, set at $216 million (200 million euros), could potentially stifle stablecoin usage and hinder overall crypto adoption.
Chander Agnihotri, legal director at global law firm Clyde and Co, and Rachel Cropper-Mawer, partner at the same firm emphasised need for regulators to reevaluate the daily limits imposed on stablecoins. Agnihotri argued that recent incidents, including the collapse of Terra’s UST stablecoin and the de-pegging of USDC following the Silicon Valley Bank crisis, have fueled regulators’ concerns about the potential impact of larger stablecoin failures on the traditional financial system.
Cropper-Mawer clarified that the 200 million euro cap does not constitute a ban, but if surpassed, stablecoin issuers would be required to cease further issuing activities and collaborate with regulators to bring transactions within the established limit. However, she also expressed anticipation that the usage of certain larger stablecoins could become stifled due to these restrictions and suggested that lawmakers should revisit the issue.
Moreover, Cropper-Mawer speculated that the current rules may pave the way for the accelerated adoption of central bank digital currencies (CBDCs) in the EU. However, she noted that allowing relatively unrestricted stablecoin usage in other jurisdictions could adversely impact the European crypto market.
While MiCA has garnered praise for providing better market access for startups and fostering innovation and competition, some critics argue that the legislation is overly cautious and fails to adequately address threats to the broader financial market’s stability.
Tether’s chief technology officer, Paolo Ardoino, emphasized the importance of continued conversation and potential revisions to the MiCA framework to ensure clarity for private stablecoin providers. He acknowledged the potential impact of daily trading caps on stablecoins but highlighted that the limits apply specifically to certain purposes as stated in the legislation.
The implementation of MiCA will occur following its publication in the Official Journal of the EU, with regulations and guidelines for crypto firms expected to come into effect in 2024.
The need for harmonized global regulatory frameworks and ongoing evaluation of emerging technologies remains paramount to foster a balanced and vibrant crypto ecosystem while mitigating potential risks. By revisiting and refining the MiCA legislation, EU regulators can strike a balance between ensuring stability and promoting innovation in the rapidly evolving world of cryptocurrencies and digital assets.