EU crypto rules set to cap dollar-pegged stablecoins

According to industry leaders, regulations imposed by the European Union to control crypto assets would reduce the market share of stablecoins not pegged to the euro starting in 2024, thereby reducing EU competitiveness.

The new Markets in Crypto Assets Regulation (MiCA), which was hammered out with the European Parliament in June, received the blessing of the 27 EU member states' ambassadors on Wednesday.

The regulations must be approved by the Parliament in order to become law; this is anticipated to occur in December or early 2023.

The ambassadors also released the full text of the agreement, which included information like the cap on the number of transactions and transaction value for stablecoins not pegged to the euro when sold within the euro zone, which is set at 1 million transactions and 200 million euros ($196 million).

The world's three largest stablecoins, Tether, USD Coin, and Binance USD, account for 75% of cryptocurrency trade volumes, and already exceed the transaction-count and volume limits outlined in the EU regulations, according to a joint letter from crypto industry groups Blockchain for Europe and the Digital Euro Association.

The limitation "would probably hamper the EU's competitiveness and innovative potential," according to Anto Paroian, CEO of cryptocurrency hedge firm ARK36.

The European Crypto Initiative, a crypto advocacy organization with offices in Brussels, warned that the result would be "burdensome."

However, it said that following "initial worries about the EU's financial stability and monetary sovereignty," a more benevolent perspective on euro-denominated stablecoins was expected to develop.

A stablecoin is a form of cryptocurrency that uses a 1:1 peg to a fiat currency to maintain a consistent value.

According to Fabian Astic, Global Head of DeFi and Digital Assets at Moody's Investors Service, "if the directive's existing language does not modified, it would considerably limit the usage of dollar-denominated stablecoins like as USD Coin, Tether, and Binance US."

In fact, this may boost the number of stablecoins linked to the euro, which is a positive development, said Stefan Berger, a member of the European Parliament who assisted in negotiating the final agreement, to Reuters.

With a market valuation of $68 billion, Tether's dollar-pegged coin is the third biggest cryptocurrency in the world, behind only the euro-pegged coin ($202 million), according to CoinGecko statistics.