Uphold, a popular New York-based crypto exchange, recently announced the delisting of six stablecoins, including Tether (USDT), in response to the upcoming MiCA regulation in the European Union. The MiCA regulation, which will fully take effect on June 30th, 2024, was passed into law in May 2023 and requires all digital assets to comply with its extensive regulations. This decision by Uphold raises concerns about the future of USDT in the region.
Tim Wang, COO of Elixir, highlighted the potential short-term effects of the MiCA regulation on the market, specifically in regards to liquidity and trading markets dominated by USDC and USDT on centralized exchanges. Wang emphasized that an intermediate term solution would likely be needed unless the EU decides to no longer facilitate crypto markets altogether. He noted that US dollar-backed stablecoins remain the primary form of collateral in the crypto markets, as Euro stablecoins have struggled to gain adoption.
The new EU crypto laws impose stringent regulations on fiat-backed stablecoins and e-money tokens, including requirements for a 1:1 backing of fiat-based stablecoins with liquid reserves, custodial separation of reserve assets, and a prohibition on algorithmic stablecoins. Uphold is not the only exchange to make changes in response to the MiCA regulation; other major exchanges like Kraken, Binance, and OKX have also adjusted their stablecoin listing policies to ensure compliance and avoid regulatory issues.
The MiCA regulations in the EU could set a precedent for crypto regulations in other regions, but the provisions for stablecoins may not be as influential. While other regulatory frameworks that originated in Europe have been adopted in the US, the regulation of stablecoins may be more complex due to the growing importance of stablecoin hegemony as a political topic. Former President Donald Trump’s recent meetings with US-based Bitcoin miners to discuss the future of mining in the country highlight the potential for stablecoin regulation to become a contentious issue, similar to the competition between USD and other currency-denominated stablecoins.
