Regulation
What the July implementation of MiCA means for cryptocurrencies
Stablecoins are at the heart of the crypto industry’s goals for a return to form.
This is because stablecoin digital assets, designed to maintain a stable value by being pegged to a reserve asset such as a fiat currency (e.g., USD) or a commodity (e.g., gold), aim to provide the benefits of cryptocurrencies, like safety. , privacy and fast transaction times, doing their best to minimize price volatility.
And with the news that, at the end of June, the milestone of the European Union will arrive Cryptocurrency Markets Act (MiCA) stablecoin regulations will come into force, compliance with this framework is critical for stablecoin issuers, custodians, trading exchanges, cryptocurrency consultancies and cryptocurrency portfolio managers.
The MiCA regulation is part of the European Union’s broader strategy to bring clarity and security to the crypto-asset market. It aims to protect consumers, ensure financial stability and promote innovation in the digital currency space.
By establishing clear guidelines for the operation of stablecoins, MiCA seeks to mitigate the risks associated with these digital assets, such as volatility and potential market manipulation.
At the same time, the implementation of MiCA takes place in a context in which, to date, most government oversight of stablecoins and the cryptocurrency industry has been relatively theoretical.
MiCA will involve the division of stablecoins into two categories across the EU: “regulated stablecoins”, i.e. those issued by certain regulated companies with approval to offer their tokens to the public and corporate landscape; and “rogue stablecoins”, i.e. those tokens that already populate the cryptocurrency market but which may not fall into the regulated category and therefore be subject to certain additional restrictions if used beyond the economic borders of the EU.
to know more: What CFOs should know about the growing use of stablecoins
Understanding the MiCA framework
According to MiCA, fiat-backed stablecoins or eMoney tokens that have passed a specific adoption threshold, measured by a set of seven quantitative and qualitative indicators, will face additional and increased regulatory requirements that will place them under the supervision of the European Banking Authority ( EBA). , as opposed to one of the EU’s national authorities.
The regulation outright bans algorithmic stablecoins and requires fiat stablecoins to be backed by a liquid reserve at a 1:1 ratio, as well as requiring issuers to establish and maintain an asset reserve isolated from other assets and held in trust by one third. These measures are designed to ensure that stablecoins can be reliably used for payments and as a store of value, thus strengthening consumer trust in digital currencies.
And with blockchain continuing to be embraced by the mainstream and traditional financial playersCompliance will be key to doing business effectively and increasing the adoption of digital assets across the EU.
Binancethe largest in the world – and often crenellated – The cryptocurrency exchange has already done this announced which intends to “limit the availability of unauthorized stablecoins to EEA users, implementing phased changes and product restrictions to ensure compliance and minimize market disruption.”
This approach, according to the company, “aims to meet MiCA goals seamlessly by transitioning users from unauthorized stablecoins to regulated stablecoins over time as more regulated stablecoins become available in the market.”
“There are currently few regulated stablecoins with limited liquidity which may not be sufficient to support sudden demand across the industry,” the exchange added in the announcement.
At the same time, stablecoin issuer Circle published in paper titled “The MiCA Importance Regime for Stablecoins: A Sledgehammer to Crack a Nut?” which supports “the dual purpose of the MiCA materiality regime – transfer of supervisory responsibility and introduction of greater prudential requirements – [to] be extricated.”
With the June deadline fast approaching, the document does not appear to have had any impact on future regulatory framework requirements.
To know more: The Solana Foundation is betting everything on Blockchain as a mainstream payment platform
What to know about the stablecoin opportunity
The recent PYMNTS intelligence report, “Can Blockchain Solve the Cross-Border Payments Puzzle?” found that by incorporating stablecoins in a company’s payment system it also provides cross-border customers with a fast, reliable and cost-effective alternative to traditional payment channels. Stablecoins can increase transaction speed and reduce currency risks, making them an attractive option for international transactions.
As just one data point, the Solana In March alone, the network processed $1.4 trillion in cross-border stablecoin payments CryptoSlatehighlighting the scalability of chain solutions for cross-border payments.
“The true intrinsic value of the blockchainwhich addresses transaction programmability, transaction immutability, and the ability to deliver versus payment and always-on payment types, has yet to be unlocked,” MasterCard Digital Director Jorn Lambert he said in an interview with PYMNTS published last July.
And as the implementation of MiCA progresses, it will be critical to monitor its impact on the stablecoin market and the broader digital currency ecosystem.
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