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European Union Commission wants to ban large-scale use of stablecoins

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The collapse of the TerraUSD (UST) stablecoin from the Terra ecosystem, which has lost its 1:1 parity with the US dollar, has warned authorities about the possible risks of massive use of stablecoins.

Now, the European Commission, of the EU, is considering introducing severe restrictions on the large-scale use of these stable assets.

As CoinDesk reported, sources said that officials at the European Union commission share the same opinion as the bloc’s finance ministers.

Previously, ministers proposed tough measures to prevent stablecoins from replacing the euro. As, for example, intended to prevent the advancement of Facebook’s (now Meta) Libra stablecoin project – which became Diem, but was abandoned.

In addition, they require the issuance of stablecoins to be stopped if certain thresholds are reached.

Limits on issuance of stablecoins

Also according to CoinDesk, the document in question is labeled as a “non-paper”. That is, it does not reflect the formal position of the commission.

Rather, it is a document designed to influence discussions on specific topics. Some of them, for example, address whether crypto companies should be able to register in tax havens.

Under the plans set out in the document, regulators could order issuers of stablecoins greater than $211 million in market cap and with more than 1 million daily transactions to halt issuance until those numbers fall back below their target levels. Limits.

“Commission services prefer Council text limiting the issuance of ARTs [tokens referenciados a ativos]”, says the document.

On the other hand, the European Parliament is in favor of a more lenient approach. That is, they intend to bring stablecoins under the supervision of the European Banking Authority.

However, as mentioned, the European Commission is not in favor of these terms. According to the commission document, parliament’s approach of forcing issuers to reimburse customers, for example, could compromise financial stability.

“The limits for monitoring and limiting ARTs that are widely used as a means of payment can be discussed at a political level,” the document adds.

The document makes clear that the European commission is in favor of measures that set specific numerical limits, rather than leaving that to the discretion of regulators.

Collapse of dollar-pegged stablecoins

The document leak comes at a time of great stability with regard to stablecoins. In fact, the cryptocurrency market as a whole has been suffering heavy losses. But the case of stablecoins is particularly critical.

As you have been following CriptoFácil, the stablecoin UST lost its parity with the dollar this week. Right now, the “stable” digital currency is trading at $0.17. Likewise, the largest stablecoin on the market, Tether (USDT), temporarily lost its 1:1 backing against the dollar this Thursday (12) when it was quoted at $0.95.

Neutrino USD (USDN), another algorithmic stablecoin, has also lost parity and is priced at $0.88 at the time of writing.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.
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