He European Union Markets in Crypto Assets (MiCA) legislationenacted on May 31, it has generated both praise and concern within the crypto industry.
While hailed as a groundbreaking regulatory framework for cryptocurrencies, there is growing apprehension about one aspect in particular: the imposition of a daily transaction limit on private stablecoins.
Set at €200 million ($219 million)this limit has sparked debates and calls to review the MiCA legislation to avoid possible stifling of stablecoin use.
In an interview with Cointelegraph, Chief Legal Officer Chander Agnihotri and partner Rachel Cropper-Mawer of the global law firm Clyde and Co express their views on stablecoins.
They stressed that the use of large stablecoins could face potential obstacles and suggested that regulators reconsider the daily limits associated with these digital assets.
Rethinking Stablecoin Oversight in the Face of Recent Incidents
Stablecoins were introduced to mitigate price volatility in cryptocurrencies like Bitcoin, BTC, and Ether.
They are intended to reflect the value of fiat currencies, particularly the US dollar.
However, recent incidents, such as the collapse of TerraUSD (UST), an algorithmic stablecoin, in May 2022, and the temporary decoupling of USDC following the collapse of Silicon Valley Bank in early 2023, have put a regulatory focus on private stablecoins. .
According to Agnihotri, regulators have a valid reason to focus on regulating private stablecoins.
These incidents have highlighted the need for stronger supervision and control to ensure stability and protect investors.
“Because of its stronger ties to the traditional financial system, through the use of reserves, regulators have been particularly concerned about the potential impact the failure of a larger stablecoin may have.”
In light of these concerns, Agnihotri and Cropper-Mawer suggest that regulators reassess the regulatory framework surrounding stablecoins.
They believe that reviewing the daily limits imposed on these digital assets could be a step towards fostering a safer and more resilient stablecoin ecosystem.
As the conversation around stablecoin regulation continues, it remains essential that regulators strike a balance between fostering innovation and protecting market participants.
The evolving nature of the cryptocurrency landscape requires ongoing discussions and adjustments to ensure the stability and sustainability of the financial system.
Perspectives on Stablecoin Regulations: Cap, Limitations, and Future Implications
According to Cropper-Mawer, the ceiling of 200 million euros does not amount to a ban. If the threshold is exceeded, issuers must halt further issuance activity and work with regulators to bring transactions below the limit.
While private stablecoins are gaining popularity, it is anticipated that certain larger stablecoins will face limitations, but Cropper-Mawer believes that lawmakers will review this issue.
Considering the potential dampening effect on stablecoin usage due to current regulations, it is reasonable to expect central bank digital currencies to see accelerated growth.
However, Cropper-Mawer acknowledges that MiCA lawmakers are aware of the potential adverse impacts of these regulations, particularly compared to other jurisdictions where stablecoin use is less restricted.
Despite receiving criticism, Agnihotri states that most of the feedback on MiCA has been positive. The legislation is expected to improve market access for new companies and smaller entities, encouraging innovation and competition. Like any legislation, there may be areas that would benefit from adjustments.
