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Key Compliance Points for European Stablecoin Issuers Under MiCA

Author: Liu Honglin, Founder of Shanghai Mankun Law Firm;

Bai Qin, Head of the Hong Kong Office, Shanghai Mankun Law Firm;

Song Kewei, Legal Assistant, Shanghai Mankun Law Firm

According to DefiLlama data, "The total market capitalization of stablecoins increased by 2.46% over the past week, now standing at $182.489 billion. Among them, USDT's total market cap rose by 0.07%, currently at $114.518 billion, with a market share of 69.82%." Stablecoin issuance has become a key growth driver in the cryptocurrency market.

The EU’s Markets in Crypto-Assets Regulation (MiCA) is "one of the most comprehensive digital asset regulatory frameworks to date." Since its enactment, Coinbase has announced the delisting of USDT for European users by the end of the year, with other exchanges following suit. This article outlines MiCA's regulatory framework for EU stablecoin issuers, providing compliance guidance for businesses and individuals entering the European crypto market.

At Mankun Blockchain, we have already provided an overview of MiCA (see: "Interpretation of the EU MiCA Act: How to Ensure Compliance for Virtual Currency Custody Services?" | Mankun Web3 Legal Insights).

Due to space limitations, this article cannot cover all regulatory provisions of the act. Instead, it highlights key points and provides a preliminary analysis based on the textual interpretation of the law, which may not fully reflect all aspects of the regulations and is intended only for reference.

I. What Are Stablecoins? MiCA's Definition and Classification

Stablecoins are cryptocurrencies designed to minimize price volatility by pegging their value to assets such as fiat currencies, commodities, or other cryptocurrencies, leveraging the benefits of crypto while reducing volatility.

Under MiCA, stablecoins are primarily classified into Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs):

  • EMTs: These are tokens pegged to a single official currency to maintain a stable value. EMTs resemble fiat currencies in the Web3 realm, akin to non-state-issued central bank digital currencies (CBDCs):
  • “Electronic money token” or “e-money token” means a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency.
  • ARTs: Unlike EMTs, ARTs maintain stable value by referencing multiple assets, which may include various currencies, rights, or combinations thereof:
  • “Asset-referenced token” means a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.

While ARTs' diversified asset backing theoretically reduces risks, it demands stricter oversight. This portfolio-like structure allows for innovation, offering flexibility in asset composition while maintaining stability.

II. Overview of Key Regulatory Requirements for Stablecoin Issuers

MiCA dedicates detailed provisions to ARTs and EMTs, with Articles 16–47 focusing on ARTs (31 articles) and Articles 48–58 on EMTs (10 articles). ARTs, being more diverse, face stricter regulations. For brevity, we focus on ARTs, using "stablecoins" to refer to both ARTs and EMTs unless specified.

Key compliance points under MiCA include:

  • Authorization for Public Offering and Trading of ARTs
  • Obligations of Stablecoin Issuers
  • Asset Reserves of Stablecoin Issuers
  • Designation of Significant Stablecoins

III. Authorization for Public Offering and Trading of ARTs

Eligibility Requirements

No entity may publicly issue or seek trading approval for ARTs in the EU unless:

  • The issuer is a legal entity authorized under Article 21 and established within the EU, or
  • It is a credit institution meeting the requirements of Article 17.

Crypto-Asset White Paper

The white paper for stablecoins (EMTs/ARTs) must include:

  • Information about the issuer
  • Details about the stablecoin
  • Information on the public offering or trading approval
  • Rights and obligations tied to the stablecoin
  • Details on the underlying technology
  • Risk disclosures
  • Asset reserve information
  • Environmental impact of the consensus mechanism

Issuers must publish the approved white paper on their website and continuously disclose updates as long as the token remains in circulation. Any omissions, inaccuracies, or misleading content in the white paper may lead to legal liability.

IV. Obligations of Stablecoin Issuers

Issuers authorized to operate in the EU must comply with obligations such as:

  • Acting honestly, fairly, and professionally in the best interests of token holders
  • Providing clear and accurate marketing communications
  • Ensuring ongoing disclosure, with updates at least monthly
  • Establishing effective complaint-handling procedures
  • Identifying, managing, and disclosing conflicts of interest
  • Implementing robust governance arrangements
  • Meeting own funds requirements, including maintaining reserves of at least €350,000, 2% of average asset reserves, or 25% of annual fixed overhead costs.

V. Asset Reserves of Stablecoin Issuers

Issuers must maintain legally segregated asset reserves to protect holders’ rights in case of insolvency. Reserve management must prioritize risk minimization and liquidity, with restrictions on investment in high-risk assets. Redemption rights must be perpetual, and EMT issuers are prohibited from offering interest on tokens.

VI. Designation of Significant Stablecoins

Stablecoins may be classified as "significant" if they meet at least three of the following criteria during the reporting period:

  • Over 10 million holders
  • A value or market capitalization exceeding €5 billion
  • An average of over 2.5 million daily transactions or €500 million in transaction value
  • Issued by a designated gatekeeper under EU Regulation (EU) 2022/1925
  • Significant international usage for payments or remittances
  • High interconnectivity with the financial system
  • Additional stablecoins issued by the same entity

Significant stablecoins are subject to stricter requirements, including biannual audits and enhanced reporting obligations.

VII. Case Study: Quantoz, a European Stablecoin Issuer

Dutch blockchain company Quantoz Payments, authorized by the Dutch Central Bank as an e-money issuer, plans to launch tokens pegged to the euro and USD. With EURQ, it aims to compete in a market where Circle's EURC and Société Générale's EURCV currently hold 67% market share.

Quantoz’s case highlights how new entrants are leveraging MiCA to ensure compliance and foster innovation in a challenging regulatory landscape.

Conclusion

This article outlines MiCA's key compliance points for ARTs across four dimensions: authorization, obligations, reserves, and significance. While not exhaustive, it offers directional guidance for entities planning stablecoin issuance in Europe. Emphasizing compliance and consulting legal experts is essential to mitigate risks and succeed in the evolving regulatory landscape.

Source: Foresight News

https://foresightnews.pro/article/detail/72538

AIC Team, December 16, 2024