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The stablecoin market keeps expanding faster than a balloon at a kid’s party, reaching over $172 billion by October 2023. And who’s helping steer this ship? None other than the European Union’s Markets in Crypto Assets (MiCA) regulation, playing a key role in setting the rules for this wild ride.

According to fresh data from DeFiLlama, stablecoins racked up an impressive $123 billion in transactions during the month, further cementing their growing influence in global finance.

Now, here’s the kicker—stablecoins make up about 50% of the total value settled on public blockchains, leaving Bitcoin in the dust with only 25%. Sorry, Bitcoin, stablecoins are the new cool kids on the blockchain.

CryptoQuant reports a 20% increase in the amount of stablecoins sitting in exchanges this year, proving that they’re not just here to play—they’re here to stay!

Stablecoins reached a record $170 billion in market cap, highlighting their expanding use in payments and growing role in the broader crypto ecosystem. pic.twitter.com/SGole3qn2d

— glassnode (@glassnode) October 16, 2024

MiCA regulation to shake up stablecoin issuers in Europe

Buckle up, because a major transformation is underway as the European Union rolls out the MiCA regulation in June 2023. This regulatory framework aims to set uniform rules for crypto assets across Europe. While it’s not fully enforced yet, its impact is already rippling through the stablecoin market.

Martin Bruncko, Founder and CEO of Schuman Financial, spilled the beans to Cryptheory, explaining that MiCA lays down some tough love for stablecoin issuers in Europe. Think anti-money laundering (AML) rules, and a laundry list of other requirements like custodianship, reserve asset protection, risk management, security policies, incident management, data protection, business continuity, complaint management—and the list goes on.

Bruncko didn’t mince words: “You’ve got to play by MiCA’s rules, or your business will be as illegal as an unsanctioned meme coin in Europe!” In short, no MiCA compliance, no European customers. Simple as that.

He predicts that MiCA’s rollout will lead to fewer USD-backed stablecoins in Europe. Coinbase is already feeling the pressure, having pulled support for Tether’s USDT in Europe, all thanks to its failure to meet the new regulations.

Euro-based stablecoins poised to take over

MiCA regulations are shaping up to be a golden opportunity for euro-based stablecoins, with experts predicting that these coins will dominate the market in the medium to long term. Not only will this strengthen their position, but it’s also likely to attract institutional interest from across Europe.

The shift is already underway—recent report from Chainalysis show that stablecoin activity is beginning to drift away from U.S.-regulated platforms. Why? The sluggish pace of U.S. stablecoin regulations and general uncertainty surrounding other digital assets.

Chainalysis summed it up perfectly: “Regulatory clarity outside the U.S. is driving global stablecoin growth, while the U.S. risks being left in the dust.” Looks like the euro-stablecoins are gearing up to give the dollar-backed ones a run for their money—literally!

MiCA brings both – opportunities and challenges

Tom Kiddle, Co-Founder of Palisade—a French-regulated digital asset custodian—claims that MiCA is like a double-edged sword for euro-based stablecoin issuers. On one hand, it opens up opportunities by boosting market confidence with strict requirements like maintaining 1:1 liquid reserves and safeguarding assets. “These obligations will make the market trust you,” Kiddle said, “but get ready, because the heavier compliance load might push some of the smaller fish out of the pond.”

Issuers outside Europe? Well, they’re in for a bit of a challenge too, especially with the need to set up official entities inside the EU. As Kiddle put it, “Everyone—whether local or international—has to play by the new rules: permanent redemption rights, full reserves, and proving they can swim with the big fish.”

Ripple is already getting in on the MiCA action, with Chris Myers, Senior Advisor for Ripple EMEA, stating that they’ve snagged a Virtual Asset Service Provider (VASP) license from the Central Bank of Ireland. But don’t expect Ripple to switch to euro-based stablecoins anytime soon. For now, they’re sticking with their USD-based stablecoin product, RLUSD, coming straight from the U.S.

Myers concluded, “We’ll definitely look at expanding to new markets as crypto and stablecoin policies evolve, but for now, we’re all about launching that shiny new USD stablecoin.”

MiCA regulation: Creating stablecoin market fragmentation

The European Union has proudly become one of the first major jurisdictions to roll out a comprehensive set of rules for stablecoins. But while MiCA brings regulatory clarity to the European Economic Area (EEA), it might also turn the global stablecoin market into a patchwork quilt of regulations, with different regions following their own rulebooks.

Myers emphasized the need for global regulatory collaboration to prevent stablecoin fragmentation from ruining the very perks they offer—like cross-border liquidity and seamless interchangeability. “We need the big regulators around the world to play nice and build a framework that allows stablecoins to operate smoothly across borders,” he stated.

Some industry leaders argue that MiCA could light a fire under countries like the U.S. to develop their own versions of such regulations. “If the U.S. wants to stay in the crypto game, they’re going to need to whip up a clear regulatory framework like the EU’s MiCA,” Kiddle remarked.

In short, MiCA sets the ground rules for licensing, capital requirements, and consumer protection, giving crypto businesses the regulatory map they’ve been begging for—but the global game of regulatory catch-up could get messy.

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Roman Blecha

I have 6 years of writing experience on several leading websites dealing with cryptocurrencies and other investments. I have been in the Web3 sector for a similar amount of time and have collaborated on several projects from NFT to P2E. My previous experiences: Business2Community.com, TradingPlatforms.com, CryptoSvet.cz