Author: Jason Allegrante, Chief Legal and Compliance Officer at Fireblocks

Translation: Felix, PANews

Recently, the stablecoin rules in the EU's Markets in Crypto-Assets Regulation (MiCA) came into effect on June 30, with other provisions expected to take effect in December. MiCA stipulates that stablecoins are prohibited from conducting more than 1 million payment transactions per day or exceeding a daily transaction volume of 2 billion euros (approximately 2.15 billion US dollars). In response to this, Jason Allegrante, Chief Legal and Compliance Officer at Fireblocks, criticized the stablecoin restriction rules, arguing that the EU should provide a fertile ground for the flourishing of stablecoins. The following is the full content:

The implementation of MiCA in the EU marks an important milestone in the development of the crypto industry.

With MiCA being phased in this summer, the EU is for the first time bringing crypto market participants under regulatory oversight. While there remains uncertainty and challenges ahead, it is hoped that MiCA will be an important step in promoting long-term stability in the crypto market, enhancing user protection, and providing a more attractive investment environment for entrepreneurs.

The drafters of MiCA have made correct provisions in many areas. One of them is the recognition that certain activities in the crypto ecosystem, such as decentralized smart contracts and NFTs, do not entirely align with existing European financial system regulatory concepts (i.e., MiFID) and are not subject to MiCA regulation. Perhaps another understanding is that regulatory authorities will impose further rule constraints on these activities.

But for stablecoins or "electronic currency" tokens, would such strict restrictions be effective?

According to MiCA regulations, certain US dollar-pegged "electronic currency" tokens (including USDT, USDC, and BUSD) are subject to restrictions in issuance and trading. Under EU regulations, the daily trading limit for these instruments (and certain others) is 1 million transactions or a daily trading volume limit of 2 billion euros.

The prescribed limits are not only too small in scale to support the current market levels, but may also cause significant disruption to the normal operation of the crypto ecosystem.

The total market value of stablecoins currently stands at a staggering $162 billion. USDT, USDC, and BUSD together account for approximately 75% of this. The European share already exceeds the limits set by MiCA, so once implemented, action to restrict the use of stablecoins would be almost immediately necessary.

All of this is important because stablecoins have become an indispensable part of realizing many key use cases (especially non-speculative use cases).

Importantly, stablecoins serve as a bridge between traditional finance and digital assets. As a reliable store of value for investors, stablecoins provide a safe haven from high volatility assets. This is in stark contrast to the perception of a "crypto casino."

Stablecoins have proven to be crucial in cross-border payments. Because stablecoins can protect those facing hyperinflation or devaluation of their national currency. Stablecoins are also frequently used to interact with smart contracts and are a core component of lending and yield-generating systems.

Restricting such a flourishing area in the digital asset ecosystem may run counter to one of the original intentions of EU regulation: to cultivate a vibrant and innovative industry in Europe.

Compared to other jurisdictions that have not implemented such measures, the restrictions on electronic currencies may also put Europe at a disadvantage. While these restrictions may be aimed at protecting the euro and mitigating potential systemic risks from widespread use of stablecoins, excessive restrictions could stifle the growth and adoption of stablecoins and have significant adverse effects on stablecoin issuers and users in the EU.

For these reasons, European regulatory authorities must reconsider the restrictions on electronic currencies.

Given the involvement of the European Securities and Markets Authority, the European Banking Authority, and other European regulatory bodies in the development of secondary rules and technical standards, there is hope for some revisions to MiCA. For example, authorities could adopt a more nuanced tiered system to adjust limits based on the size and maturity of the issuer.

Whatever approach is taken, it should be able to improve the current situation and promote a better balance between the market and regulation.

As the author has stated elsewhere, stablecoins are one of the "weapons of mass adoption" in the digital asset industry. These products and services, such as ETFs and stablecoins, can enter consumers' lives and bring a positive experience of blockchain technology with very low barriers to entry. Stablecoins meet this requirement in multiple ways. As a product offered by regulated authorities, stablecoins are a window for banks and other financial issuers. In the process of being used by consumers, stablecoins are a perfect tool for realizing Web3 business and smart contract interactions—often seamlessly integrated as part of games or other online environments.

While stablecoins are beneficial to consumers, they also involve issues such as monetary policy, sovereign debt issuance, and global soft power export competition. The cautious approach of European regulatory authorities is correct, but it should not come at the expense of sacrificing critical technology for the entire crypto ecosystem. If the digital asset market is to flourish under MiCA in Europe, stablecoins must be given the conditions to flourish.

Related reading: What does Circle's compliance with the MiCA bill to issue USDC and EURC mean for the crypto industry?

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