What MiCA’s July Implementation Means for Crypto Around the World

Stablecoins are at the center of the crypto sector's goals for a return to form.

This is because stablecoin digital assets, which are designed to maintain a stable value by being pegged to a reserve asset such as a fiat currency (e.g. USD) or a commodity (e.g. gold), have aims to provide the benefits of cryptocurrencies, such as security. , privacy and fast transaction times, while doing everything possible to minimize price volatility.

And with the news that, at the end of June, the European Union's milestone Cryptoasset Markets Law (MiCA) will come into force; Complying with that framework is a priority for stablecoin issuers, custodian companies, trading exchanges, crypto asset advisory firms, and cryptocurrency portfolio managers alike.

The MiCA regulation is part of the European Union's broader strategy to bring clarity and security to the cryptoasset market. Its goal is to protect consumers, ensure financial stability, and encourage innovation within the digital currency space.

By establishing clear guidelines for the operation of stablecoins, MiCA seeks to mitigate the risks associated with these digital assets, such as volatility and potential market manipulation.

At the same time, the implementation of MiCA occurs in a context in which, to date, the majority government oversight of stablecoins and the crypto sector has been relatively theoretical.

MiCA will result in stablecoins being divided into two categories across the EU: “regulated stablecoins”, or those issued by certain regulated companies with approval to offer their tokens to the public and business landscape; and “unauthorized stablecoins”, or those tokens that already populate the crypto market but may not fall into the regulated category and therefore be subject to certain additional restrictions when used across the EU's economic borders .

Read more: What CFOs Need to Know About the Growing Use of Stablecoins

Understanding the MiCA framework

Under MiCA, stablecoins backed by fiat money or e-money tokens that have passed a specific adoption threshold (measured by a set of seven quantitative and qualitative indicators) will face additional and increased regulatory requirements that will place them under the supervision of the Authority. European Banking Authority (EBA). , unlike one of the EU's national authorities.

The regulation bans algorithmic stablecoins entirely and requires that fiat-backed stablecoins be backed by a liquid reserve that has a 1:1 ratio, in addition to requiring issuers to establish and maintain a reserve of isolated assets of other assets and held in custody by a third party. These measures are designed to ensure that stablecoins can be reliably used for payments and as a store of value, thereby improving consumer confidence in digital currencies.

And as blockchain continues to be adopted by the mainstream and traditional financial playersCompliance will be crucial to doing business effectively and increasing the adoption of digital assets across the EU.

binancethe largest in the world (and often embattled - crypto exchange has already done it Announced which plans to "restrict the availability of unauthorized Stablecoins to EEA users, implementing gradual changes and product restrictions to ensure compliance and minimize market disruption."

This approach, according to the company, "aims to seamlessly meet MiCA's goals by transitioning users from unauthorized Stablecoins to regulated Stablecoins over time, as more regulated Stablecoins become available on the market."

“There are currently few regulated stablecoins with limited liquidity which may not be sufficient to support a sudden industry-wide demand,” the exchange added in the announcement.

At the same time, the stablecoin issuer Circle published a paper titled “The MiCA Importance Regime for Stablecoins: A Sledgehammer to Crack a Nut?” which advocates “the dual purpose of the MiCA regime – transfer of supervisory responsibility and introduction of greater prudential requirements – [to] be unraveled.”

With the June deadline quickly approaching, the document does not appear to have affected the requirements of the upcoming framework.

Read more: The Solana Foundation is committed to Blockchain as a conventional payment method

What you need to know about the stablecoin opportunity

The recent PYMNTS Intelligence report, “Can Blockchain Solve the Cross-Border Payments Puzzle?” discovered that incorporating stablecoins in a company's payment system also provides cross-border customers with a fast, reliable and cost-effective alternative to traditional payment methods. Stablecoins can increase the speed of transactions and reduce currency risks, making them an attractive option for international transactions.

As just one piece of information, the solarium The network processed $1.4 trillion in cross-border stablecoin payments in March alone, per cryptoslatehighlighting the scalability of chain solutions for cross-border payments.

“The true intrinsic blockchain valuewhich revolves around transaction programmability, transaction immutability, and the ability to do deliveries versus payments and always-on payment types, has not yet been unlocked.” MasterCard Digital Director Jorn Lambert he said in an interview with PYMNTS published last July.

And as the implementation of MiCA progresses, it will be crucial to monitor its impact on the stablecoin market and the broader digital currency ecosystem.