- EU MiCA mandates strict compliance standards for stablecoin issuers.
- Circle is expected to overtake Tether as the dominant stablecoin player in the EU.
- Circle seeks to expand the use of USDC and EURC.
Stablecoins come in different forms, including fiat-backed, commodity-backed, and algorithmic. They provide users with price stability, a secure store of value, and can be used as a medium of exchange. As regulatory frameworks take shape, stablecoins are gradually gaining legitimacy as a recognized payment method.
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Aligned with this effort, the EU’s Markets in Crypto-Assets (MiCA) stablecoin regulations, which took effect in June, impose strict compliance requirements on issuers to bring more order to the stablecoin market. As a result, compliant stablecoins like Circle’s USDC and EURC are now better positioned for wider adoption across the region.
Circle to Expand Stablecoin Usage
MiCA’s stablecoin rules provide a legal framework for issuers to operate in the region. Seizing this opportunity, Circle CEO Jeremy Allaire is currently in Europe to promote the use of USDC and EURC as compliant legal electronic money.
Allaire highlighted that EURC’s market cap has surged 70% since MiCA regulations took effect in June. Meanwhile, USDC remains the top dollar-backed compliant stablecoin in Europe.
According to CoinMarketCap, USDC’s market cap has steadily increased since the start of 2024, rising from $25 billion to $35.8 billion.
On the other hand, EURC faced a challenging start in 2024, dropping from an opening market cap of $57.4 million to a low of $35.1 million in July. However, it has since rebounded significantly, nearly doubling to $62.88 million, suggesting that the implementation of MiCA regulations has benefitted EURC.
MiCA’s Tight Grip
MiCA’s stablecoin rules aim to enhance investor protection by requiring issuers to meet strict criteria before gaining approval. These include maintaining sufficient reserves, proper segregation of funds, appropriate custody arrangements, and regular reporting requirements.
A key requirement under MiCA is that major stablecoin issuers must hold at least 60% of their reserves in cash with a commercial bank. However, Tether CEO Paolo Ardoino has criticized this, arguing that large cash reserves increase exposure to banking failures since deposits are uninsured. He contended that holding 100% of reserves in treasury bills is a safer option.
With MiCA coming into effect on June 30, Tether has been unable to persuade EU regulators on this issue. As a result, despite USDT being the largest stablecoin, it is not compliant with the EU, leading many exchanges to restrict its use on their platforms. This situation has paved the way for Circle’s USDC and EURC to dominate the region’s stablecoin market.
Despite these restrictions, USDT has added $8 billion to its market cap since MiCA took effect. This indicates that compliance with EU regulations may not be critical in the global adoption of stablecoins.
On the Flipside
- Due to their EU compliance, traditional European businesses and financial institutions may be more drawn to USDC and EURC.
- MiCA regulations have outlawed algorithmic stablecoins.
- BlackRock manages some of Circle’s USDC reserves.
Why This Matters
Circle’s European push could reshape the continent’s digital payment landscape, potentially paving the way for widespread stablecoin adoption in everyday transactions.
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