Although MiCA is considered beneficial for stablecoin regulation, it raises questions about consolidation, particularly for smaller cryptocurrency companies.
According to Binance, the largest cryptocurrency exchange in the world, Europe’s impending regulatory framework will mark a significant advancement for global stablecoin legislation.
The first comprehensive legislative framework for cryptocurrencies is the Markets in Crypto-Assets Regulation (MiCA) bill from the European Union, which could give the sector legitimacy with legislators worldwide.
A Binance representative stated that MiCA would be a “critical element” for the creation of an extensive, worldwide stablecoin regulation:
“By setting clear rules on issuance, reserve management, and redemption, MiCA enhances market stability and consumer protection, while also fostering innovation through legal certainty.”
The Binance official continued, “Mica’s all-encompassing approach will serve as a global benchmark” for other countries attempting to align their frameworks with MiCA for more “cross-border compatibility.”
On December 30, the MiCA framework—which influences suppliers of crypto-asset services—is scheduled to take full effect. A few big European banks have already started getting ready to launch their digital asset offerings.
The deployment of MiCA will determine its impact on stablecoins.
Although completely decentralized digital assets are not covered by MiCA, some decentralized finance (DeFi) protocols involve centralized intermediaries. Hence, the framework might still be applicable in those situations.
However, according to a Binance analysis of international stablecoin laws, a rigorous implementation might provide more challenges for stablecoin suppliers.
According to the report:
“A strict interpretation of the legislation could require that these DeFi protocols comply with the same licensing and Know Your Customer (KYC) requirements as traditional financial services firms. This could impose significant burdens that many DeFi protocols may find challenging or be unwilling to meet.”
Overview of Global Stablecoin Regulation. Source: Binance
To prevent another collapse, such as the Terra USD (UST) stablecoin in May 2022, the EU’s MiCA implementation will forbid the production of algorithmic stablecoins to increase stability.
Is cryptocurrency produced by MiCA “just like TradFi”?
Although the MiCA bill benefits the cryptocurrency sector overall, smaller businesses are concerned about consolidation.
Anastasija Plotnikova, CEO and co-founder of Fideum, a regulatory and blockchain infrastructure company, claims that the bill is forcing the Web3 industry to become more like traditional finance (TradFi), making it harder for businesses with limited funding to grow.
Plotnikova stated:
“Crypto is becoming just like a TradFi. The more money you have, the more assets under management, the easier it is to scale.”
She said that this might put further strain on smaller businesses with tighter budgets:
“It will be a lot more predatorial, even VC practices or larger crypto companies just buying the talent, buying this off the shelf.”
In anticipation of MiCA’s deployment, a few of the biggest banks have already started to prepare their digital asset offering.
The 19th-largest banking group in the world by assets, Societe Generale, has teamed up with Bitpanda to introduce EUR CoinVertible (EURCV), a stablecoin that complies with MICRA regulations.
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