Finalised full text of landmark Markets in Crypto Assets (MiCA) legislation shows Stablecoins restriction dropped from E.U. digital asset framework

Brief Overview

• The EU has finalised technical discussions on its landmark MiCA regulatory framework.
• MiCA report shows a lift on restricting measures on stablecoins.
• Officially, the text is still open to comments, but in practice, finalised.
• The report is now pushed to the next steps towards enforcement, projected to the start of 2024.

European Union officials have taken the next step in crafting a comprehensive framework to govern digital assets, with a major win for Stablecoin advocates included in the latest version.

The proposal initially placed limitations on stablecoin issuance and trade limits restricting Stablecoins with over 10 million users or 5 billion euros worth of circulating supply and capping the daily trading volume at 200 million euros.

The finalised markets in crypto-assets (MiCA) regulation shows that limitations on the use of U.S. dollar-pegged tokens within the E.U. have been removed but will require issuers of crypto assets to publish white papers containing technical roadmaps, for platforms to register with the authorities, require stablecoin issuers to hold capital and be prudently managed.

Digital asset industry lobbyists were concerned over the language, arguing that it could cause unintended consequences for the trading of cryptocurrencies in Europe.

Algorithmic stablecoins, which were notably excluded from MiCA's scope when it was first introduced in 2020 have now been included and should fall within the scope of regulation "irrespective of how the issuer intends to design the crypto asset, including the mechanism to maintain a stable value."

A Recital referring to the section of the law that lays out requirements for crypto asset issuers said.

"Offerers or persons seeking admission to trading of algorithmic crypto assets that do not aim at stabilizsing the value of the crypto assets by referencing one or several assets should in any event comply with Title II of this Regulation,"

The legislation focuses more on stablecoins and other digital asset trading, but leaves the door open for further rulemaking on decentralised finance (DeFi) and non-fungible tokens (NFTs) by the European Banking Authority and other financial regulators.     

The rule making is the result of official “trilogue” discussions between the European Parliament, European Commission and European Council, which concluded on June 30. Unusually, parts of the Recital were intentionally left open for further discussion despite receiving initial tri-institutional approval.

A Recital is a text that introduces an EU law and sets out its motivation. Though not unlike the substantive articles of the regulation which are legally binding, a recital can be used by supervisors and courts when interpreting the scope of the legislation.

An older draft also sought to limit the issuance of stablecoins that reference a non-EU fiat currency like the U.S. dollar which the industry feared would block popular U.S. dollar-pegged stablecoins like USDC out of the EU market. The new draft seemingly removes this cap.

Circle who owns and operates USD Coin, the second-most-popular stablecoin in the industry with a market value of more than $54 billion announced the launch of the EUROC, a fully regulated, 1:1 Pegged 'full-reserve model’ euro-backed stablecoin joining a short list of euro-backed stablecoins including the Tether's EURt, Stasis EURS and e-money.com existing suite of 100% Collateralised European Stablecoins (EEUR, ECHF, ENOK, ESEK, EDKK).

The rulemaking will place binding guardrails on the digital asset industry in Europe. Per E.U. procedure the document must be translated into member country languages. Provisions for stablecoins are expected to come into force in January 2024, and the rest of the provisions in June 2024.

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