European Union’s MiCA Legislation and its Impact on Stablecoin Adoption: Lawyers Raise Concerns

The European Union’s Markets in Crypto-Assets (MiCA) legislation, enacted on May 31, has generated praise and concerns within the crypto industry. 

While hailed as a groundbreaking regulatory framework for cryptocurrencies, there is growing apprehension regarding one particular aspect: the imposition of a daily transaction cap on private stablecoins.

Set at 200 million euros ($219 million), this limit has sparked discussions and calls for revising the MiCA legislation to prevent the potential stifling of stablecoin usage.

In an interview with Cointelegraph, legal director Chander Agnihotri and partner Rachel Cropper-Mawer from the global law firm Clyde and Co express their views on stablecoins. 

They emphasized that using large stablecoins could face potential obstacles and suggested that regulators reconsider the daily limits associated with these digital assets.

Rethinking Stablecoin Oversight in the Face of Recent Incidents

Stablecoins were introduced to mitigate the price volatility in cryptocurrencies like Bitcoin, BTC, and Ether. 

They aim to mirror the value of fiat currencies, particularly the United States dollar. 

However, recent incidents, such as the collapse of TerraUSD (UST), an algorithmic stablecoin, in May 2022, and the temporary de-pegging of USDC following the collapse of Silicon Valley Bank in early 2023, have brought the regulatory spotlight onto private stablecoins.

According to Agnihotri, regulators have a valid reason to focus on regulating private stablecoins. 

These incidents have highlighted the need for stricter oversight and control to ensure stability and protect investors.

“On account of their stronger links to the traditional financial system — through the use of reserves — regulators have been particularly concerned by the possible impact that the failure of a larger stablecoin may have.”

In light of these concerns, Agnihotri and Cropper-Mawer suggest that regulators reevaluate the regulatory framework surrounding stablecoins. 

They believe that revisiting the daily limits imposed on these digital assets could be a step towards fostering a more secure and resilient stablecoin ecosystem.

As the conversation around stablecoin regulation continues, it remains essential for regulators to strike a balance between fostering innovation and protecting market participants. 

The evolving nature of the cryptocurrency landscape necessitates ongoing discussions and adjustments to ensure the stability and sustainability of the financial system.

Insights on Stablecoin Regulations: Cap, Limitations, and Future Implications

According to Cropper-Mawer, the 200 million euro cap does not equate to a ban. If the threshold is exceeded, issuers must halt further issuing activities and collaborate with regulators to bring transactions under the cap.

While private stablecoins are gaining popularity, certain larger stablecoins are anticipated to face limitations, but Cropper-Mawer believes lawmakers will revisit this issue.

Considering the potential dampening effect on stablecoin use due to current regulations, it is reasonable to expect that central bank digital currencies may experience accelerated growth.

However, Cropper-Mawer acknowledges that MiCA lawmakers are aware of these regulations’ potential adverse impacts, particularly in comparison to other jurisdictions where the use of stablecoins is less restricted.

Despite receiving criticism, Agnihotri states that the majority of feedback on MiCA has been positive. The legislation is expected to improve market access for startups and smaller entities, fostering innovation and competition. Like any legislation, there may be areas that would benefit from adjustments.