EU MiCA Regulations Stifle Stablecoin Growth

Europe is currently facing significant challenges in its digital money initiatives, particularly with the implementation of the EU Market in Crypto-Assets regulations (MiCA). These regulations, while intended to provide a framework for digital cash, have inadvertently created barriers that hinder the growth and innovation of stablecoins within the region.

Stablecoins, which are digital representations of traditional currencies on blockchain technology, offer numerous benefits. They enable instant, low-cost transactions, facilitate global payments, and support various financial applications such as automated lending and securities trading. For instance, a Polish worker in France can send euros home instantly for a fraction of the cost and time compared to traditional methods. Similarly, German start-ups can efficiently raise capital through automated issuance of compliant digital shares and debt.

However, the MiCA regulations impose additional requirements on e-money issued onchain, effectively creating tariffs and anti-competitive restrictions. One such requirement mandates that stablecoin issuers safeguard at least 30% of their customers’ funds with banks, thereby sharing their income with these institutions. This not only increases costs but also makes e-money onchain more risky by inserting banks and their balance sheets into the process, where they are not necessary.

Moreover, the MiCA bank safeguarding requirement violates the European e-money directive, which aims to ensure fair competition and a level playing field between e-money issuers and banks. By shifting the playing field in favor of banks, MiCA undermines the very principles it seeks to uphold.

To address these issues, the EU should remove all blockchain-specific requirements for e-money and strip away the unnecessary red tape from the MiCA regulations. Additionally, the European Central Bank (ECB) and other EU central banks should further level the playing field between banks and e-money issuers. Granting e-money issuers direct access to ECB payment systems and safeguarding facilities would eliminate unnecessary gatekeepers and tariffs, helping to unlock the full potential of the onchain economy for Europe and the euro.

In contrast, the United States has recognized the importance of stablecoins and is working on legislation to ensure the dominance of the US dollar in the digital realm. The EU, on the other hand, risks hobbling its own digital initiatives by making e-money regulations more anti-competitive, costly, and risky. A fundamental change in mindset is needed to foster innovation and growth in the digital money sector.