The European Union’s new Markets in Crypto-Assets (MiCA) regulations, which came into effect on December 30, are poised to strengthen euro-denominated stablecoins, according to a research report from JPMorgan.
Under MiCA, only compliant stablecoins can be used as trading pairs in regulated markets, prompting a shift in offerings by exchanges within the EU, analysts led by Nikolaos Panigirtzoglou noted.
MiCA’s Impact on Stablecoins
The regulations require stablecoin issuers to maintain significant reserves in European banks and obtain trading licenses. This has resulted in a divergence between compliant stablecoins, such as Circle’s EURC, and non-compliant ones like Tether’s EURT, which has faced operational challenges.
Tether announced in November that it would phase out its EURT stablecoin, allowing users to redeem tokens for up to 12 months. This decision has already led to the delisting of Tether’s USDT from several EU-based exchanges.
Despite these hurdles, Tether continues to dominate the global stablecoin market, particularly in Asian markets where regulatory restrictions are less stringent, JPMorgan said.
Opportunities for Euro-Denominated Stablecoins
The report highlights how MiCA is providing opportunities for compliant euro-backed stablecoins to gain traction. Circle’s EURC has emerged as a strong contender, benefiting from the regulatory clarity that MiCA offers.
A stablecoin is a type of cryptocurrency pegged to a stable asset, such as the U.S. dollar, euro, or even commodities like gold, designed to minimize price volatility. MiCA’s requirements for transparency and reserve backing aim to bolster trust in these assets.
Tether’s Adaptation to MiCA Rules
Tether is adapting to the new regulatory landscape, evidenced by its investments in MiCA-compliant stablecoin issuers. In December, the company announced its support for European stablecoin issuer StablR and previously partnered with Quantoz Payments, signaling its commitment to maintaining a presence in the EU market.
Broader Implications for the Crypto Market
JPMorgan’s report underscores the significant role of MiCA in reshaping the stablecoin ecosystem within the EU. By limiting trading pairs to compliant assets, the regulations are expected to accelerate the adoption of euro-backed stablecoins while encouraging issuers to align with stringent regulatory standards.
As MiCA takes hold, the EU aims to solidify its position as a global leader in crypto regulation, fostering innovation while ensuring financial stability and investor protection. This development could have lasting effects on the stablecoin market, influencing strategies for issuers globally.
