MiCA Makes Euro Stablecoins Safer but Less Competitive, Report Says

Minseung Kang

Summary

The report said MiCA has made euro-based stablecoins safer but less commercially attractive, leaving them with less than a 1%% share of the global market.
It said strict 100%% reserve requirements, a ban on interest payments, and mandatory bank deposits for part of reserves are weakening the competitiveness of euro stablecoins in a higher-rate environment.
The report said current rules have entered a phase where they are constraining stablecoin activity, and called for limited revisions to reserve structures, interest policy, and transparency standards as discussions on MiCA 2.0 continue in the EU.

Forecast Trend Report by Period

The European Union’s Markets in Crypto-Assets regulation, or MiCA, has made euro-denominated stablecoins safer but less competitive, according to an industry report.

Cointelegraph reported on April 27 that Blockchain for Europe, an industry group, wrote in the report that the MiCA framework has made euro stablecoins overly conservative and less commercially attractive.

The report found that euro stablecoins account for less than 1% of the global market. That is well below the euro’s weight in global financial markets.

It identified strict reserve requirements and a ban on interest payments as the main reasons. Under MiCA, euro-based electronic money tokens, or EMTs, must hold 100% reserves and cannot pay interest to holders.

The report said the interest ban is intended to prevent stablecoins from expanding as a substitute for bank deposits. In a higher-rate environment, however, it also undermines their competitiveness.

It also criticized rules requiring part of reserves to be held in bank deposits as inflexible. MiCA currently requires at least 30% of reserves to be kept as bank deposits, rising to 60% for major issuers.

The report said the rules have reached a point where they are curbing stablecoin activity. It called for limited revisions to reserve structures, interest policy and transparency standards.

Separately, discussions on a "MiCA 2.0" revision have begun within the EU. Still, opponents of looser rules argue that deregulation could undermine financial stability and expand regulatory arbitrage.