The digital asset landscape in the EU is evolving ahead of the passage of the Markets in Crypto-Assets (MiCA) regulatory framework, which aims to bring regulatory transparency around crypto assets. Although well-intentioned, the current MiCA structure can stifle innovation. But if the revised version of this policy passes, the EU could see itself as one of the leaders in the digital payments space. If not, there is a chance that the continent will fall behind.
The MCA aims to develop a regulatory framework for the crypto asset industry in the EU. At this point, much still needs to be coded and clarified, but the broad strokes are now known.
At the same time, financial technology firm Circle launched a stablecoin called the Euro Coin (EUROC). The EuroCoin will implement the same fully-owned model as the company’s existing US Dollar Coin (USDC). This trusted digital currency of the United States dollar is used in centralized and decentralized exchanges and currently has more than $55 billion in circulation. Therefore, designed for stability, EUROC is 100% Euro-backed by the Euro-bank and redeemable 1:1 for the Euro.
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While these two pieces of news appear to be positive developments for crypto in Europe, all is not as it seems. The MiCA framework limits the amount of stablecoin payments to $200 million per day. This is too low a measure of success and ultimately only serves to stifle innovation and hinder what these assets can deliver. Take the view from Belgium, where from July 1, 2022, all merchants must offer at least one digital payment solution. But, here’s the catch – cryptocurrency and stablecoins are not accepted as valid forms of digital payment under this offer.
MiCA’s limitations hold back the potential of EUROC and other digital assets. And, until this hurdle is overcome, the EU may not see the kind of adoption needed to lead crypto innovation globally. And, it risks seeing the euro’s role as a global currency significantly diminished.
MiCA’s unfriendly, or perhaps reckless, stance on digital assets will undoubtedly have a major impact on aspiring and already established crypto projects in the EU. In fact, the club has already made it clear that it will not actively sell the EUROC mandate until the framework becomes clearer.
This is a huge missed opportunity for the EU market to lead in digital asset innovation. Far from the “innovation-friendly” approach that the MCA seeks, the restrictions imposed by the framework reduce the attractiveness of the EU as a whole and force digital currency businesses out of Europe.
Alternatively, accepting and using EUROC – and others like stablecoins – from a tried and tested issuer as an accepted form of digital settlement can streamline the payment process, lower costs and bring more protection to consumers. However, if the legal transaction size is arbitrarily capped at $200 million, adoption may also be limited.
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Making the euro stablecoin accessible to virtual asset service providers (VASPs) would be a great way to make the industry more resilient and better protect customers. In fact, in Europe, when clients use a crypto custodian, in the event of bankruptcy, crypto assets cannot be seized by creditors but fiat assets can. These are considered “advance payments”. Therefore, more access to the Euro stable coin means a safer VASP industry.
Ultimately, the MCA could be a net positive and important step for crypto asset regulation in the EU. However, it is important to ensure that regulation remains innovation-friendly and technology-neutral, and as such, the call from European Central Bank President Christine Lagarde for a MiCA II framework may be accepted. We may not completely agree with her about what should be in it.
This should include removing the cap on Stablecoin volumes and encouraging digital currencies, especially stablecoins, to be recognized and encouraged as a form of payment in the EU. Anything less and developers and innovators will need other, more forward-thinking powers.
Matthew Hardy He is the Chief Development Officer at Osom Finance. He started his career in IT change management before turning to digital business model innovation, curious about how the digital realm offers a new playing field for social science.
This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.