While crypto horoscopes predict a bull run, a seismic event unfolding in the crypto space could trigger a meltdown in the cycle. USDT, the largest stablecoin, may face regulatory scrutiny in the European Economic Area (EEA) due to the new MiCA regulations, which could threaten its dominance in the market and ban it from the EU.
Coinbase Plans To Delist USDT In the European Economic Area (EEA)
Recently, Coinbase, the leading crypto exchange, announced that it will delist all unauthorized stablecoins that do not comply with the European Union’s Markets in Crypto-Assets Regulation (MiCA) from its platform in the European Economic Area (EEA), which comprises 30 countries, by the end of the year, including USDT.
Coinbase stated, “Given our commitment to compliance, we intend to restrict the provision of services to EEA users in connection with stablecoins that do not meet MiCA requirements by December 30, 2024.”
While other stablecoin issuers, such as USD Coin (USDC) and Euro Coin (EURC), secured an Electronic Money Institution license in July 2024, Tether Limited Inc. has yet to obtain a license for USDT, potentially banning it from the EEA.
What are MiCA Regulations?
The Markets in Crypto-Assets (MiCA) regulation is a new European Union (EU) law created to bring clarity, security, transparency, and protection to the growing world of crypto assets. Its full implementation is expected by December 2024.
The MiCA regulations were approved by the EU Parliament in April 2023, with the goal of safeguarding investors. Through these regulations, authorities aim to ensure financial stability in the crypto sector.
While stablecoins have become a crucial element in the DeFi world, bridging the gap between traditional finance and decentralized finance (DeFi), MiCA also introduces specific guidelines for stablecoins.
According to MiCA, crypto assets are divided into three categories: asset-referenced tokens (ARTs), e-money tokens (EMTs), and other crypto assets, including Bitcoin and utility tokens. Stablecoins fall under the ARTs and EMTs categories.
EMTs are tied to a single fiat currency, like the euro or dollar, while ARTs are backed by a combination of assets, such as multiple currencies or commodities. This classification ensures clear oversight and distinct regulatory treatment depending on the type of stablecoin.
Additionally, stablecoin issuers must have transparent governance structures and effective risk management practices. These measures are designed to enhance the reliability and trustworthiness of stablecoins in the market.
Under the new MiCA regulations, stablecoin issuers will need authorization from a national competent authority within the EU. Issuers will also be required to maintain capital reserves that sufficiently back their tokens, ensuring stability in value.
Apart from these regulations, MiCA also sets requirements for security auditors. This ensures that auditors are qualified cybersecurity professionals who regularly audit and report on the compliance of crypto asset providers.
List of Potential Stablecoins To Replace USDT
USDT currently holds the title of the largest stablecoin, followed by Circle, the issuer of USD Coin (USDC) and Euro Coin (EURC), in second place.
At the time of writing, USDT’s cumulative market cap is over $119.64 billion, while the second-largest stablecoin, USDC, has a market cap of around $35.51 billion. USDT is more than three times larger than its competitor, demonstrating its stronghold in the crypto market.
The reason behind USDT’s vast popularity is its accessibility to major crypto exchanges like Binance and Coinbase. USDT is a highly liquid asset pegged to the USD in a 1:1 ratio, allowing users to transact on widely popular payment services like PayPal. Furthermore, USDT is now available on most blockchains, including Bitcoin, Solana, Tether, and Ethereum.
With this in mind, it is an uphill task for any stablecoin competitor to replace USDT anytime soon. Although it’s delisting on major crypto exchanges like Coinbase, where it holds 0.26% of the volume, may not significantly impact it, it will open doors for other stablecoins to expand their market presence.
Final Thoughts
Globally, MiCA is expected to set a new standard for the regulation of crypto assets. This will also influence other countries like the U.S. to prepare regulatory frameworks for crypto regulations. By ensuring transparency, stability, and consumer protection, MiCA aims to make the crypto market more secure and attractive for investors.
Also Read: Tether Discontinues USDT on Eos and Algorand for Efficiency
