As the EU's MiCA comes into effect the challenges of regulation hitting innovative projects is starting to show, with Tether announcing they are discontinuing their EUR denominated stablecoin, with users to exit by 27 November 2025, and Coinbase ending their yield bearing USDC stablecoin in the EU.
Stablecoins such as Tether hold (or allegedly hold given the various concerns about Tether over the years) dollar for dollar backing for the stablecoins they issue. Those backing reserves can earn very substantial interest returns, with Tether earning USD$7.7B this past year from their reserves). Tether's EURT has maintained a decent price peg against the Euro but has suffered some small discounting over the last year, possibly MiCA induced:
Coinbase offers "rewards" which weren't expressly linked to their underlying reserves, but are largely viewed as funded by interest earned on reserves. Chainalysis has conducted research into stablecoin usage, which continues to rise and found that stablecoins dominate holdings in western europe and are being held for longer on average over time:
As a result the MiCA regime is likely to have significant impacts on this very popular form of cryptocurrency.
MiCA Stablecoin Regulation
The specific issue is this, Article 50 which prohibits the granting of interest.
More broadly, the MiCA regulation in the EU recognise two general categories of tokens:
e-money tokens (EMTs) which are designed to serve primarily as a means of payment; and
asset-referenced tokens (ARTs) which aim to maintain a stable value by having their price pegged to certain assets.
Issuers of EMTs must have a licence as an authorised credit institution or electronic money institution to offer stablecoins (something Circle has done) and are subject to oversight by the European Banking Authority. Most stablecoins are expected to fall under the EMT category. By contrast issuers of ARTs must be approved by a competant supervisory authority in an EU member state or could be exempt from that requirement if issued by a licensed credit institution. Issuers have to publish a whitepaper including details of:
specified details of the issuer and a description of the nature of the project;
the rights and obligations attached to the token;
the nature of the underlying technology used for the token; and
identification of risks the issuer anticipates could arise from the issuance of the token, these are likely to include bankruptcy risks, financial stability risks, and anti-money laundering and counter terrorism financing risks (pus others).
There are ongoing regulatory requirements to maintain reserves and custody arrangements and segregation of assets with reporting requirements and governance arrangements to identify and manage the key risks.
Given Tether's history it's not a surprise that they would need to migrate to a different issuance structure, but there has also been anger at the new rules requiring an end to yield bearing stablecoins, which users purchased to earn while holding. X users mocked the decision, including:
What's next?
Despite the rules, further stablecoins are planned, and it will be interesting to see how yields from the underlying reserves can find their way back to holders given that is clearly something the market, and issuers, wish to do. In the meantime the slow progress of regulation means that even if the EU wishes to permit yield on stablecoins (which is no guarantee), it will take sometime before it could be enabled.
By Michael Bacina
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