In October 2022, the European Union finished the text of regulatory rules for digital assets. This document wa s called Markets in Crypto-Assets, or MiCA. The MiCA entered into force in June 2023. Large-scale crypto-regulation rules in the EU were first adopted in 2020.
The MiCA rules will regulate the work of crypto-service providers and issuers of different types of digital assets including stablecoins in the 27 EU member states.
This means that soon the cryptocurrency market in the EU will become more regulated.
The role of MiCA requirements
The MiCA regulations have as their main goal the regulation of crypto-assets in the European Union and the protection of consumer rights, as well as the development of the crypto-industry.
This will increase trust in cryptocurrencies and stablecoins, which in turn will lead to their wider distribution and use.
MiCA regulations will prevent fraud and bankruptcies of crypto services, like what happened with FTX and BlockFi, and protect the interests of investors and cryptocurrency holders.
However, there are some restrictions and new requirements for crypto service providers and digital asset issuers that could affect their business models and operations.
The necessity of regulation of blockchain technology and cryptocurrencies
Blockchain technology, on which cryptocurrencies and stablecoins are based, has significant benefits for the real economy, including increased efficiency and transparency in business processes, reduced costs, and improved data management.
Events such as the collapse of FTX and Terra have shown the need to regulate the crypto industry to protect the rights of cryptocurrency investors and holders and restore the industry's reputation.
The crypto community is now even more focused on improving digital currency regulation and making it in compliance with the general economic environments and financial sector.
The MiCA sees blockchain technology as a tool for decentralization, trust, transparency, and openness. Blockchain technology provides many opportunities and useful tools for small businesses worldwide. It allows many people to interact with each other using digital tools that can become useful in the real world.
It makes it easier to track cryptocurrency transactions and helps distinguish normal from illegal activity in the chain.
Regulation of stablecoins
MiCA is a regulatory framework created by the European Commission to govern the issuance and trading of stablecoins and other digital assets. It introduces new rules and regulations for issuers of stablecoins, cryptocurrencies with a value pegged to the value of some other asset, such as fiat currency.
After the collapse of the Terra ecosystem and its native stablecoin, the European Central Bank informed that stablecoins became a threat to financial stability.
Despite this, the European Commission has approved stablecoins in the MiCA Regulation, as long as private stablecoin issuers comply with basic rules and regulations.
The creation of MiCA shows the benefits of an innovative and liberal approach to regulation of the global financial sector that has interested other countries, including the United States.
It will also help mitigate price fluctuations and simplify transactions, which could make stablecoins more in demand in general.
Despite the creation of MiCA, regulating stablecoins, there are doubts about how popular and sought-after stablecoins will be in the EU. The most popular stablecoin in the EU continues to be Tether.
The adoption of MiCA will not increase the number of euro-denominated stablecoins in the eurozone too much. Still, the adoption of MiCA could help stablecoins in general to become more in demand.
Lawmakers have not banned digital assets in all their diversity.
They have developed basic rules for private issuers of cryptocurrencies and stablecoins, which some experts say are reasonable.
MiCA became a good example of the benefits of innovative and liberal approaches in regulating the global financial sector.