# Burdensome but not a threat: How new EU law can affect stablecoins

By [BitcoinBSV](https://paragraph.com/@bitcoinbsv) · 2022-07-18

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The year 2022 saw not only drastic dips in leading cryptocurrencies and financial [markets in general](https://cointelegraph.com/news/law-decoded-june-13-20-celsius-exodus-and-liquidity-crisis) but also major legislative frameworks for crypto in prominent jurisdictions. And while the “crypto bill,” co-sponsored by United States senators Cynthia Lummis and Kirsten Gillibrand, [still has a long way to go](https://cointelegraph.com/news/lummis-gillibrand-bill-establishes-sec-cftc-balance-of-power-over-crypto-markets), its European counterpart, the Markets in Crypto-Assets (MiCA), had finally [made it through Tripartite negotiations](https://cointelegraph.com/news/eu-agrees-on-mica-regulation-to-crack-down-on-crypto-and-stablecoins). 

On June 30, Stefan Berger, European Parliament member and rapporteur for the MiCA regulation, revealed that a “balanced” deal had been struck, which has made the European Union the first continent with crypto-asset regulation. Is the deal really that “balanced,” and how could it affect crypto at large and some of its most important sectors in particular?

No direct ban, but tighter scrutiny
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The industry met the latest MiCA draft with a mixed response — the [cautious optimism of some experts](https://cointelegraph.com/news/experts-weigh-in-on-european-union-s-mica-crypto-regulation) was [counterweighted by the diagnosis](https://cointelegraph.com/news/eu-agrees-on-mica-regulation-to-crack-down-on-crypto-and-stablecoins) of “unworkability” on Twitter. While the package dropped one of its most alarming sections, a [de facto prohibition](https://cointelegraph.com/news/eu-parliament-can-outlaw-transacting-with-unhosted-wallets-crypto-advocate-warns) of the proof-of-work (PoW) mining, it still contains a number of controversial guidelines, especially regarding stablecoins. 

Ironically, in its assessment of the risks [posed](https://data.consilium.europa.eu/doc/document/ST-11053-2020-INIT/en/pdf) by stablecoins to the economic system, the European Commission has chosen a combination of “moderate” options, reserving from the outright ban, which is labeled in the document as Option 3:

> “Option 3 would not be consistent with the objectives set at the EU level to promote innovation in the financial sector. Furthermore, Option 3 could leave some financial stability risks unaddressed, should EU consumers widely use ‘stablecoins’ issued in third countries.”

The chosen approach qualifies stablecoins as a close analog of the EU’s definition of “e-money” but doesn’t see the existing Electronic Money and Payment Services directives as fit for addressing the issue. Hence, it suggests a set of new “more stringent” guidelines. 

The most outstanding requirement to the issuers of “asset-referenced tokens” is 2% of the average amount of the reserve assets, which would be obligatory for issuers to store in their funds separately from reserves. That would make Tether, which [claims](https://tether.to/en/understanding-tethers-peg-and-reserves/#:~:text=Tether's%20Reserves&text=The%20vast%20majority%20of%20USD,of%20USD%E2%82%AE's%20backing.) to have over $70 billion in reserves, hold a separate $1.4 billion to comply with the requirement. With Circle’s [amount](https://www.circle.com/en/usdc) of reserves ($55 billion), that number will stand at $1.1 billion.

Another benchmark that caused an uproar from the community is a daily cap for transactions, set at 200 million euros. With 24-hour daily volumes of Tether ([USDT](https://cointelegraph.com/tether-price-index)) sitting at $50.40 billion (48.13 billion euros) and USD Coin ([USDC](https://cointelegraph.com/usdc-price-index)) at $5.66 billion (5.40 billion euros), such a standard would inevitably lead to a legal controversy.

**_Recent:_** [**_Crypto payments gain ground thanks to centralized payment processors_**](https://cointelegraph.com/news/crypto-payments-gain-ground-thanks-to-centralized-payment-processors)

Apart from that, the guidelines set several standard formal procedures for the stablecoin issuers such as the obligation to register legal entities in the EU and provide quarterly reports and white papers with mandatory disclosure requirements.

Beyond stablecoins
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Some don’t consider the stringent MiCA guidelines for stablecoins to be a major threat. Candace Kelly, chief legal officer and head of policy and government affairs at the Stellar Development Foundation, believes that, while being far from perfect, the framework will help the crypto industry to better understand where the EU stands. She told Cointelegraph:

> “Burdensome, yes. An existential threat, no. A stablecoin should be able to live up to its name, and it’s clear that the EU was trying to accomplish this by setting standards that mandate accountability.”

Budd White, chief product officer and co-founder of crypto compliance firm Tacen, told Cointelegraph that the concerns about the cap on daily transactions may present an obstacle to mass institutional adoption in Europe. However, he doesn’t find the 2% demand particularly worrisome, seeing it as a step to balance trust and privacy and provide a layer of insurance for investors:

“It may limit the ability of some small players to enter the market, but it will introduce a requisite amount of trust into the system — which is a significant improvement.”

At the end of the day, White considers MiCA a hugely important step forward for crypto regulation in the EU, even though some of the industry’s anxieties are justified. He draws attention to another section of the regulation, namely the guidelines for [nonfungible tokens (NFTs)](https://cointelegraph.com/nonfungible-tokens-for-beginners/what-are-nfts-and-why-are-they-revolutionizing-the-art-world). The current definition most closely likens NFTs to regulated securities, leaving wiggle room for the interpretation of NFT art and collectibles.

In Kelly’s opinion, there is yet another area of concern in MiCA aside from stablecoins — the crypto-assets services provider (CASP) verification requirements. While the framework avoided including personal wallets in its scope, Kelly suspects the regime to verify ownership of personal wallets by CASPs and then apply risk-based Know Your Customer and Anti-Money Laundering procedures will end up being quite burdensome for CASPs as they will have to engage with individual users, rather than custodial entities, to meet the requirements:

> “Our hope is that we will see new and innovative solutions from the industry come forward that help ease this burden.”

Michael Bentley, CEO and co-founder of London-based lending protocol Euler, is also positive about MiCA’s ability to support innovation and reassure the market. Nevertheless, he has his doubts about the individual reporting requirements for transfers over 1,000 euros, which could be too burdensome for many retail crypto investors: 

“Non-compliance, whether intentional or otherwise, could be used to create the impression that ordinary people are involved in nefarious activities. It is unclear what evidence base was used to determine the 1,000 euro cut-off or if mass surveillance of ordinary citizens is needed to tackle the problem of money laundering.”

A threat to the digital euro?
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If not an outright existential threat at this point, could the European guidelines for stablecoins demonstrate the EU’s desire to eventually outplay the private digital currencies with its own project of the digital euro? 

The European Central Bank launched its central bank digital currency (CBDC) [two-year investigation phase](https://cointelegraph.com/news/ecb-is-looking-to-design-a-digital-euro-more-energy-efficient-than-bitcoin) in July 2021, with a possible release in 2026. A [recent working paper](https://cointelegraph.com/news/ecb-lays-out-anonymous-digital-euro-as-public-opposes-slavecoins) that suggested a “CBDC with anonymity” may be preferable compared to traditional digital payments [drew a wave of public criticism](https://cointelegraph.com/news/there-are-already-digital-means-of-payment-eu-commission-gets-11-000-public-comments-on-cbdc-project).

White acknowledged that he wouldn’t be surprised if the EU’s goal is to taper out the competition to create its own CBDC but doesn’t believe it could be successful. In his opinion, it is too late, as the independent stablecoins have gone too mainstream to be cut out from the market. At the same time, a viable government-backed digital currency has yet to be created and that development will require trial and error: 

> “Despite pressure from the European Central Bank to create its own CBDC, I expect stablecoins to remain pertinent to both individual and institutional investors.” 

For Dixon, this should not be an either-or conversation. She sees the best-case scenario as the one in which stablecoins and CBDCs co-exist and are complementary. For cross-border payment use cases, central banks will need to work together on standardization to allow for interoperability and reduce the number of intermediaries necessary to process a transaction. 

**_Recent:_** [**_Andorra green lights Bitcoin and blockchain with Digital Assets Act_**](https://cointelegraph.com/news/andorra-green-lights-bitcoin-and-blockchain-with-digital-assets-act)

In the meantime, the global adoption of stablecoins will continue to develop. As a result, we should expect more consumers and small businesses to use stablecoins to send and receive cross-border payments due to affordability and speed of transactions:

“Different forms of money serve different individual preferences and needs. By augmenting the existing wire, credit card, and cash system with innovations like CBDCs and stablecoins we can begin to create financial services that serve everyone.”

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*Originally published on [BitcoinBSV](https://paragraph.com/@bitcoinbsv/burdensome-but-not-a-threat-how-new-eu-law-can-affect-stablecoins)*
