Crypto Exchanges and Issuers in Europe Face Transformation as Stablecoin Delistings Unfold — Insights from TradingView News

A landmark decision by one of the top four global cryptocurrency exchanges to stop offering a prominent stablecoin across an entire continent has certainly caught the attention of the industry.

This might be an early sign of wider changes on the horizon.

Anticipate further shake-ups with the forthcoming implementation of the revolutionary Markets in Crypto-Assets Regulation (MiCA) in Europe, slated for the end of June.

Specifically, stablecoins originating from outside the continent could encounter hurdles. However, industry insiders tell Cointelegraph that MiCA is poised to establish a more secure and robust framework for stablecoin proprietors and users in the long term.

According to reports, the Seychelles-headquartered trading platform OKX has withdrawn Tether (USDT) pairs for the European Economic Area (EEA) ahead of MiCA. OKX has stated in a customer service announcement that only Euro and USDC pairings will be available for spot transactions going forward.

Regulatory Terrain in Flux

The industry experts have not expressed much astonishment at these developments. Christian Catalini, of the MIT Cryptoeconomics Lab, remarked that he is “entirely unsurprised by the delisting” and anticipates “major changes to the stablecoin landscape globally as new regulations emerge, bringing with them new market participants from conventional banking and fintech sectors.”

Arvin Abraham, a partner at the UK legal firm Goodwin Procter, also sees this as a trend that will continue. He told Cointelegraph:

“Once MiCA is active, we can predict that non-compliant stablecoins will be removed by exchanges for their European clientele.”

Given that the leading stablecoins are not European, the EEA is likely to experience “an extensive overhaul of the landscape following MiCA’s enactment,” according to Abraham, with leading players potentially having to exit the market if they are unable or unwilling to comply.

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“The stringent demands MiCA places on electronic money tokens and asset-referenced tokens [two types of stablecoins in MiCA’s vocabulary] will without a doubt influence the stablecoin options available in the EU,” explained Jean-Baptiste Graftieaux, global CEO at Bitstamp, a cryptocurrency exchange based in France. Bitstamp is keeping a watchful eye on these developments, he told Cointelegraph.

The hurdle for stablecoin issues is that they’ll now need to be a recognized EEA entity and certified as an Electronic Money Institution in the EEA, Graftieaux noted, describing this as a significant challenge for current stablecoin endeavors, with the June 30, 2024, deadline rapidly approaching for compliance with the new regulations.

Increased Challenges for Off-shore Stablecoin Issuers?

“For non-European [stablecoin] issuers, having to establish and authorize an entity in the EU is a notable additional expense,” Abraham highlighted. Yet, domestic issues are not exempt from challenges.

“Conforming to the stipulation of 1:1 reserves to back claims, providing perpetual redemption rights to token holders, and for stablecoins that exceed a value of 100 million euros, furnishing quarterly reports to their EU home state regulator, imposes significant extra duties on all issuers,” said Abraham.

Jon Helgi Elisson, co-founder of Monerium and ex-chairman of the Central Bank of Iceland’s supervisory board, pointed out to Cointelegraph that most stablecoins currently offered in Europe are not in compliance with current e-money regulations, much less the upcoming MiCA obligations.

“Europe has been following the e-money directive for over two decades,” Elisson remarked. “It’s inequitable to have a stablecoin marketplace wherein some entities are compliant, and others are not.”

He also suggested that compliance costs could be immense for certain issuers. Under MiCA, fiat-backed stablecoin providers are mandated not only to maintain 1:1 liquid reserve ratios but also to segregate user funds, granting customers a direct claim on the backing funds as opposed to the issuing company.

Compliance burdens will be particularly onerous for those with larger market caps. “Previously, regulations do not differentiate based on issuing entity size,” Elisson continued. Nevertheless, MiCA makes a clear distinction between ‘significant’ and ‘non-significant’ issuers, with ‘significant’ issuers required to allocate more equity against potential losses.

Could this mean further modifications for off-shore issuers?

“These regulations may bring forth challenges for those operating in international markets,” Graftieaux indicated. This includes potential increases in compliance costs, barriers to market entry, and potential regulatory dissonance, leading to fragmentation of policy.

Abraham anticipates a “substantial temporary disruptive impact on the market since Tether is currently the most widely used stablecoin worldwide.”

However, on a longer timeline, “other stablecoins will likely step in to fill the gap, and the ecosystem could arguably become safer, given these coins would comply with MiCA’s strict consumer protection and prudential safeguards.”

Crypto exchanges might also need to adjust. “Some exchanges depend on stablecoins as a transitional medium before fiat is employed for crypto purchases or to facilitate a trade between two crypto assets,” stated Abraham. These stablecoins, at least for European clients, may become unavailable soon.

Crypto Markets, An Example

However, Graftieaux underscored the prospective long-term advantages for both investors and the market at large. “Regulatory standards like these, which center on market integrity and investor safety, set a precedent for other markets. If adopted, they will bolster investor confidence.”

The MiCA framework has made ripples in the UK, Graftieaux continued, where the government has openly committed to the digital asset sector, seen “as a conscious strategic decision to be at the forefront of international regulation with the EU in this space.”

Moreover, Graftieaux refutes the argument that MiCA could stifle innovation in blockchain and crypto within EU countries. “While innovation is vital, market stability’s importance is paramount.”

In the end, this new framework not only acknowledges blockchain’s revolutionary potential but also strives to achieve an equilibrium, offering legal clarity and reliability. Graftieaux continued to share with Cointelegraph, saying:

“This harmonization facilitates seamless collaboration across EU states, fostering innovation through the exchange of ideas under a more robust regulatory framework.”

Some believe MiCA could pave the way for a new wave of stablecoin providers in Europe.

“Predicting market responses is difficult, yet one certainty remains: MiCA offers Europe, and the euro stablecoins, a significant opportunity,” Jean-Marc Stenger, CEO at Societe Generale – Forge, disclosed to Cointelegraph, adding:

“The European market is dynamic and has a sophisticated investor base. The conditions are ripe for a shift towards a balance between euro and dollar stablecoins long-term.”

In conclusion, by focusing on market integrity and protecting investors, EU’s new crypto regulations could serve as a role model for other markets, despite some initial challenges. In the stablecoin space, we might also see new contenders emerge to take on the current dominance of dollar-backed stablecoins.

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“While MiCA has its imperfections, it marks a starting point for more comprehensive stablecoin regulation. It is a significant improvement over the current conditions in the U.S., where regulatory certainty is lacking, and where new directives are essential to ensure the safety and reliability of stablecoins for consumers and businesses,” said Catalini, and concluded:

“With clear rules established, we will be able to discern which stablecoins have longevity and can genuinely cater to consumer and business requirements on a large scale.”