MiCA’s impact on stablecoins: Will USDt survive in the EU?

Key takeaways

• MiCA classifies stablecoins into asset-referenced tokens (ARTs) and electronic money tokens (EMTs), requiring full 1:1 backing with liquid reserves, robust transparency and regulatory approval to operate in the EU.
• Algorithmic stablecoins, which lack tangible backing and rely on market mechanisms to maintain their value, are prohibited under MiCA due to their high-risk nature.
• Issuers must comply with strict requirements, including registration as an EMI or CI, transparent white papers, liquid reserves held by EU-authorized custodians and integration of digital token identifiers (DTIs).
• The compliance status of Tether’s USDt remains uncertain, with regulators yet to confirm whether it meets MiCA requirements. While it is not explicitly banned, its accessibility and usage in the EU may be affected during MiCA’s transition period.

If you’re following the cryptocurrency space, you’ve probably heard about the European Union’s regulation called Markets in Crypto-Assets (MiCA). 

But what does MiCA mean for stablecoins like Tether (USDt), USD Coin (USDC) and others? 

Let’s break it down in simple terms and explore whether your favorite stablecoin will survive in the EU under the new rules.

What is MiCA?

The EU’s comprehensive set of regulations, known as MiCA, is intended to regulate cryptocurrency assets, including stablecoins. The primary objective is to preserve the EU’s authority over its monetary system, safeguard financial stability and protect consumers. 

Consider MiCA as the EU’s way of saying, “We want to embrace crypto, but we need to do it responsibly and safely.”

Stablecoins Under MiCA

Stablecoins are a special type of cryptocurrency designed to maintain a stable value by being pegged to traditional assets like fiat currencies (e.g., USD, EUR), commodities (e.g., gold), or even other cryptocurrencies. 

Under MiCA, stablecoins are divided into two categories:

• Asset-referenced tokens (ARTs): These are backed by a mix of assets, such as multiple currencies and commodities.
• Electronic money tokens (EMTs): These are pegged to a single currency, similar to traditional electronic money.

MiCA imposes stringent requirements on these stablecoins to ensure they are fully backed by liquid reserves and maintain a 1:1 backing ratio with their underlying assets.

Did you know? MiCA regulation pushes international stablecoin issuers to use EU-authorized custodians and adapt to complex structures like Circle’s French subsidiary issuing USDC in Europe.

The ban on algorithmic stablecoins

A significant provision of MiCA is the outright ban on algorithmic stablecoins within the EU. Algorithmic stablecoins lack explicit reserves linked to conventional assets, in contrast to ARTs and EMTs. To maintain their peg, they depend on complex algorithms and market mechanisms. 

MiCA does not recognize these as asset-referenced tokens due to the absence of clear, tangible backing. Consequently, algorithmic stablecoins are effectively prohibited under MiCA regulations.

What are the compliance requirements for stablecoins under MiCA?

If you’re a company looking to offer a stablecoin in the EU, here’s what you need to do:

1. Registration as an E-Money Institution (EMI) or Credit Institution (CI): Issuers must be registered as an EMI or CI, ensuring that your company meets the necessary financial and operational standards. An EMI license is necessary for issuing EMTs or offering them publicly for trading. Similarly, a CI license is mandatory when conducting a public offer of EMTs or pursuing their admission to trading.
2. Publishing a white paper: This is a detailed document that explains how your stablecoin works, what assets back it, the risks involved and how your operations are structured.
3. Holding liquid reserves with a third-party custodian: You must maintain a 1:1 backing ratio, meaning each stablecoin is fully supported by actual assets held securely by a trusted third-party custodian.
4. Reporting the value and composition of reserves: Regular transparency reports are mandatory so users and regulators know exactly what backs your stablecoin.
5. Digital token identifiers (DTIs): DTIs are like barcodes or digital passports for your tokens. As a stablecoin issuer, you must include DTIs in your white paper. They provide clear information about which ledger each token is on and help regulators track liabilities.

The role of digital token identifiers (DTIs)

The DTI is a unique identifier for digital tokens, created under ISO 24165 by the International Organization for Standardization (ISO). 

Similar to how traditional securities use the International Securities Identification Number (ISIN) to identify securities such as stocks, bonds and other financial instruments, DTIs bring order to the cryptocurrency market. These identifiers are structured as alphanumeric codes, ensuring that each digital asset has a unique, permanent ID. 

The DTI system, managed by the Digital Token Identifier Foundation (DTIF), helps improve transparency, facilitate regulatory compliance, and enhance interoperability between different blockchain networks and financial systems. 

By simplifying the tracking and monitoring of digital assets, DTIs support: 

• Better risk management
• Streamlined reporting
• More reliable market data. 

To obtain a DTI, you (as a stablecoin issuer) must:

1. Request allocation: Submit a request on the DTI website with your token’s details.
2. Validation by DTIF: The DTIF checks the technical aspects of your token.
3. Receive your DTI: Once validated, a unique DTI is assigned to your stablecoin.

Further details on the process can be found in the MiCA official guidelines and the DTI quick guide.

Is Tether (USDt) MiCA compliant?

As MiCA aims to enhance transparency and protect consumers by requiring stablecoins, classified as EMTs, to obtain licenses as credit or electronic money institutions and meet various compliance standards, Tether has not yet met these requirements, raising questions about USDt’s legal status in the EU.

The uncertainty surrounding its compliance has led to contrasting perspectives, with some arguing that USDt could face restrictions, while others say it may retain a foothold within the transition period outlined by MiCA.

“No regulators have explicitly stated that USDt isn’t compliant, but this does not mean that it is,” Juan Ignacio Ibañez, a member of the Technical Committee of the MiCA Crypto Alliance, told Cointelegraph.

He pointed out that while Coinbase’s decision to delist USDt could be seen as a cautious step, there is currently no clear regulatory directive for exchanges like Binance or Crypto.com to follow suit. He said that other exchanges may face similar delisting decisions as the regulatory landscape for stablecoins becomes clearer after full enforcement of MiCA.

Social media discourse has raised concerns regarding the status of USDt in Europe. Some argue that while USDt is not immediately banned in Europe, MiCA regulations require compliance with a transition period, as shown in the image below. This means that USDt may not be eliminated from the EU market, though its accessibility and usage are likely to be significantly impacted by MiCA.

However, there is another perspective that USDt will no longer be able to trade across Europe after Dec. 30.

Notably, Tether backs Malta-based stablecoin firm StablR, which focuses on two major stablecoin projects: the euro-backed StablR Euro (EURR) and the US dollar-pegged StablR USD (USDR). These tokens will leverage Tether’s tokenization platform, Hadron, enhancing the flexibility and accessibility of stablecoin transactions.

That said, the compliance of USDt with MiCA is uncertain. The relevant regulators are yet to confirm whether USDt meets the requirements under MiCA and other laws. Until such announcements are made, any claims about its compliance or potential ban remain unverified.

Did you know? Tether CEO Paolo Ardoino revealed at Switzerland’s PlanB event that Tether’s reserves include $100 billion in US Treasurys, 82,000 BTC ( at that time worth $5.5 billion), and 48 tons of gold to back its USDt stablecoin.

Can you still use USDt on DEX after the 30th?

While decentralized exchanges (DEXs) themselves are decentralized and may not be directly affected by MiCA, users in the EU will need to follow the new regulations. 

This will include verifying whether a token like USDt meets the required standards under MiCA. Using non-compliant tokens could pose legal risks.

Which stablecoins are in alignment with MiCA?

A compliant stablecoin adheres to the relevant laws, regulations and standards set by authorities in various jurisdictions. 

Compliance usually involves maintaining transparency, implementing stringent Anti-Money Laundering (AML) practices and ensuring proper Know Your Customer (KYC) procedures. Additionally, compliant stablecoins must be backed by verifiable reserves and undergo regular audits, helping foster trust within the market.

Examples of stablecoins aligning with MiCA’s requirements include:

• EURI: Issued by Banking Circle, this stablecoin is registered as a CI in Luxembourg, with DTI LGPZM7PJ9, supporting Ethereum and BNB Smart Chain.
• EURe: Monerium’s stablecoin, registered as an EMI under the Central Bank of Iceland, with DTIs on Ethereum, Polygon and Gnosis.
• USDC and EURC: Issued by Circle Internet Financial Europe SAS (Circle SAS) and registered as e-money tokens. Notably, white papers of both stablecoins lacked information regarding DTIs as of Dec. 26.
• EURCV: SG Forge’s CoinVertible is registered as an EMI in France with DTI 9W5C49FJV, implemented on Ethereum.
• EURD: Quantoz Payments’ EURD is registered as an EMI in the Netherlands with DTI 3R9LGFRFP, built on Algorand.
• EUROe and eUSD: Membrane Finance Oy’s stablecoins, registered as EMIs in Finland, with multiple DTIs across Concordium, Solana, Arbitrum, Avalanche, Ethereum, Optimism and Polygon.
• EURQ and USDQ: Launched by Quantoz Payments with support from Tether, Kraken, and Fabric Ventures, these stablecoins are fully backed by fiat reserves and licensed by the Dutch Central Bank (DNB) as e-money tokens.
• EURØP: A euro-backed stablecoin by Schuman Financial, fully backed by cash and cash equivalents, to be available on Ethereum and Polygon, with plans to expand to all major European centralized crypto exchanges. EURØP’s MiCA compliance was secured through Schuman Financial’s subsidiary, Salvus SAS, which obtained an e-money token license from the French Prudential Supervision and Resolution Authority. It will be restricted in 107 high-risk jurisdictions, including Iran, North Korea, Venezuela, Russia, Turkey, El Salvador, South Africa and the UAE.

What’s next for stablecoins in the EU?

MiCA will reshape the EU’s crypto market by enforcing strict compliance standards and banning algorithmic stablecoins. 

While this poses challenges for established players like USDt, it also allows euro-denominated stablecoins and other compliant tokens to flourish. The EU is setting a global example, and other regions might follow suit, leading to a more unified and secure global cryptocurrency landscape.