Crypto analyst Mads Eberhardt from Steno Research anticipates that the European Union's Markets in Crypto-Assets Regulation (MiCA) will lead to the delisting of Tether (USDT) from exchanges serving EU residents. This regulatory shift, taking effect on June 30, 2024, aims to enhance market safety but could fragment liquidity and ecosystems in the short term.
The EU's MiCA framework, set to be fully implemented by December 30, 2024, introduces stringent requirements for stablecoin issuers. Notably, Titles III and IV, focusing on stablecoins, will be enforced from June 30, 2024. These regulations classify stablecoins into asset-referenced tokens (ART) and e-money tokens (EMT), imposing significant compliance obligations on issuers.
Stablecoins, essential for crypto trading and market efficiency, face substantial regulatory changes under MiCA. For ARTs, issuers must draft a detailed white paper, maintain at least 2% of the supply in own funds, and ensure orderly redemption of client funds. EMT issuers must be authorized as e-money or credit institutions, holding at least 30% of reserves as cash deposits.
Eberhardt notes that Tether's refusal to comply with MiCA, citing constraints on reserve management, suggests that Tether might be delisted from EU exchanges. Tether CEO Paolo Ardoino has expressed concerns about the feasibility of meeting MiCA's reserve requirements, highlighting the potential loss of income from interest on reserves as a primary issue.
This potential delisting poses risks to market liquidity. Tether, being the most widely used stablecoin, plays a crucial role in crypto trading. Its removal could fragment liquidity and efficiency, impacting decentralized applications and trading ecosystems. Eberhardt predicts that Circle's USDC might gradually capture Tether's market share, given its more transparent reserve practices and potential regulatory approval in France.
Moreover, the rise of EUR-denominated stablecoins is expected as a response to MiCA's restrictions on non-euro-denominated stablecoins. This could further fragment the market but facilitate European participation in the crypto economy by eliminating foreign exchange risks.
In conclusion, MiCA regulations, while aiming to enhance market trust and safety, might lead to significant shifts in the stablecoin landscape. Tether's potential delisting underscores the challenges of regulatory compliance and its impact on market dynamics. Investors and market participants should closely monitor these developments to navigate the evolving regulatory environment.