Are stablecoins under MiCAR just another passing trend?
With the global cryptocurrency market hitting €2.4 trillion, the European Union has introduced the Markets in Crypto-Assets Regulation (MiCAR) to create a safer space for crypto-assets, especially stablecoins. However, concerns persist that excessive regulation or high compliance costs could impede the growth of stablecoins, particularly for smaller issuers. So, what will determine MiCAR’s success in shaping the future of stablecoins?
As the first legislative framework of its kind in the EU, MiCAR regulates stablecoins, categorized as asset-referenced tokens (ARTs) and e-money tokens (EMTs). ARTs are backed by a diversified basket of assets, while EMTs are backed by a single fiat currency. This approach strives to prevent regulatory loopholes and promote a stable, transparent market.
The potential of stablecoins regulated by MiCAR offers exciting possibilities. They provide stability in volatile markets and offer faster, cheaper cross-border payments. Companies like SAP and Visa are already exploring stablecoin-based payment solutions due to these efficiencies. Additionally, stablecoins could change peer-to-peer transactions, e-commerce, and in-game payments, supplying programmable features that traditional money can’t match.
MiCAR’s impact isn’t just limited to stablecoins but expands to other types of tokens and most services such as on- and off-ramping from traditional money to crypto, trading, and more. The regulation seeks to balance innovation with consumer protection, fostering a safer environment for digital sectors like decentralized finance (DeFi), the metaverse, and NFTs.
MiCAR is also setting a global benchmark for cryptocurrency regulation. The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) are using MiCAR as a model to shape international standards. Meanwhile, the U.S. relies on a mix of state laws and proposed federal bills, Singapore mandates low-risk, liquid asset reserves for stablecoins, and China has banned all cryptocurrency transactions. This diversity in regulations points to the need for international cooperation and a unified regulatory approach, potentially through bodies like the Financial Stability Board (FSB).
Will MiCAR succeed in shaping the future of stablecoins? It depends on its flexibility to adapt to evolving market conditions and tech advancements. There are already signs that the regulation might extend to unhosted wallets offered through mobile apps or any user interface into. This might stifle innovation and leave the EU behind, also when it comes to stablecoins and other features of the future financial internet. The next few years will be indispensable in defining the role stablecoins will play in the global financial system.
