The EU’s crypto asset market legislation could effectively ban dollar-pegged stablecoins such as USDT and USDC in 27 member states. Lobbyists have warned that the consequences for the crypto market could be severe.
Key Points
- Lobbyists have warned that the framework could effectively ban the top three stablecoins in the EU, saying it would hurt the market.
- The letter calls for clearer guidelines to allow USD-based stablecoins to be traded within EU member states.
- The European Blockchain and Digital Euro Association has sent a letter to the European Council warning of the potential impact the proposed MiCA legislation could have on cryptocurrencies.
The European Blockchain and Digital Euro Association said the ruling could lead to “extreme short-term volatility” and a “massive exodus of crypto activity outside the EU.”
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Crypto lobbyists warn that if EU-proposed regulation of the crypto asset market takes effect in its current form, it could spell a battle for the industry disaster.
In a letter to the EU Council, the European Blockchain and Digital Euro Association warned that MiCA’s plan to introduce restrictions on crypto tokens could affect USDT, USDC and BUSD. According to their letter, the current MiCA guidelines would effectively ban the top three stablecoins in 2024, which would have serious spillover effects across the industry. The letter states that the ban will lead to a “failure” in the market, which will lead to “potentially destabilizing effects and a substantial exodus of crypto activity outside the EU.”
EU’s MiCA Legislation Proposes Restrictions on Non-Israeli Unions Issuance and use of tokens denominated in the official currency of one of the 27 member states. The proposal includes plans to introduce restrictions on tokens used as a means of exchange, an issue raised by the European Blockchain and Digital Euro Association as it may apply to stablecoins used for trading.
According to the letter to the EU Council, the proposed legislation, if implemented, would lead to “extreme short-term volatility”, “dislocation effects”, “liquidity fragmentation”, and Crypto innovation exodus from the EU. The restrictions will incentivize users to use unregulated services outside the EU and “undermine the EU’s efforts to harness the potential of crypto and blockchain,” the letter said.
Stablecoins pegged to the euro cannot compete
While the legislation will not affect euro-denominated stablecoins, the European Blockchain and Digital Euro Association says the market will still be severely affected . This is because stablecoins pegged to the euro account for only a small portion of the market compared to USDT, USDC and BUSD (the letter cites research from the European Central Bank stating that the trading volume of stablecoins based on euros is around $21 million, while the USDT is $53 billion) ). “It is unrealistic to expect euro-referenced stablecoins to catch up with dollar-referenced stablecoins in trading volume and replace them with trading pairs in the foreseeable future,” the letter said.
To overcome potential problems the restrictions could pose for the crypto industry, lobbyists want the EU to take into account the role of dollar-based stablecoins in crypto exchanges and DeFi, and clarify the definition of tokens used as a means of exchange.
MiCA was first proposed by the European Commission in September 2020 and approved by lawmakers in June 2022. Next, the details need to be hammered out, before the European Council and European Parliament agree to the ruling before it can be formally adopted.
Disclosure: At the time of writing, the author of this article owns USDT, ETH, and several other cryptocurrencies.
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