The entry into force of MiCA in June has caused a lot of ink to flow. Concerns are palpable regarding the limits introduced concerning stablecoins.
Stablecoin and monetary sovereignty
The European MiCA regulation on stablecoins provides for limits from which the issuance of foreign stablecoins must cease.
The limits only apply to stablecoins backed by the dollar, other foreign currencies, or a basket of assets that includes multiple currencies, commodities, cryptocurrencies, or other assets. Facebook's aborted Libra/Diem project is a good example.
The issuer of a foreign stablecoin that becomes too important in everyday payments (transactions to pay for goods and services) will have to stop issuing them if the limit of 200 million euros per day is exceeded. The EU specifies that only stablecoins backed by the euro can be used to pay for goods and services such as your vegetables or your rent.
On the other hand, there are no limits regarding conversions between stablecoins and cryptocurrencies, especially on DEX (Decentralized exchange). Nothing changes for those who use stablecoins to buy bitcoins. And it doesn't matter whether they are stablecoins backed by the euro or any other currency.
Currently, stablecoins are not widely used for everyday payments, but this practice could intensify over time. Hence this safeguard aimed at protecting European monetary sovereignty.
The limits in detail
The issuance of stablecoins should cease when daily use “as a medium of exchange within a single currency area is greater than 1 million transactions and 200,000,000 euros “.
To put these numbers into perspective, note that daily transactions in the tether stablecoin ranged from $15 billion to $67 billion during the month of June…
However, and again, the limit only applies to payments in foreign stablecoins. The vast majority of tether (USDT) transactions involve conversions to bitcoin and other cryptocurrencies, which are therefore not taken into account.
Transactions where one party is located outside the EU are also not taken into account. In addition, transactions related to investments are also excluded. Foreign stablecoins can be used to pay for real assets that are “tokenized”. These types of transactions are not counted towards the daily limit.
The question everyone is asking now is: How do we know if stablecoins are being used in this or that way?…
Especially since the law does not require the issuer of a stablecoin to report transactions between “non-custodial” wallets, i.e. peer-to-peer.
This is typically the case for crypto companies that use stablecoins to pay their freelancers. Technically, this is a payment for goods and services. But since these players generally hold their stablecoins in their own right (non-custodial), these types of transactions will not be counted towards the €200 million per day limit.
Bank card transactions
MiCA also addresses the case of transactions in which a stablecoin is used as an intermediary payment instrument. The actors targeted are companies that allow their customers to use their bitcoins to make payments in euros via Visa and Mastercard cards:
When a user makes a payment at a coffee shop using a bitcoin reserve, the BTC is actually exchanged for a stablecoin that is actually used to make the payment. These kinds of intermediary transactions count toward MICA’s limits.
Overall, while the limits seem very restrictive at first glance, the impact will likely be marginal. The bottom line is that stablecoin issuers that want to get more involved in real-world payments within the EU will have to use the euro, not the dollar.
In this respect, the stablecoin issuer Circle has just received approval as an electronic money institution (EMI) from the Banque de France.
“By working closely with French and European regulators, we are now able to offer USDC and EURC stablecoins to the European market, in full compliance.”said Jeremy Allaire, co-founder and CEO of Circle.
“The EURC will be fully issued by Circle France, and all reserves will be held by Circle France in accordance with MiCA standards”he added.
Let us conclude by noting that the EU requires large issuers to hold 60% of their reserves in bank accounts that earn much less interest than Treasury bonds. This shortfall remains the main point of contention.
In the meantime, the stablecoin market continues to grow on the old continent.
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