USDC Becomes Compliant as MiCA Regulations Change Crypto: Expert Analysis

USDC Becomes Compliant as MiCA Regulations Change Crypto: Expert Analysis

On July 1, 2024, stablecoin issuer Circle announced that its France-based unit received an Electronic Money Institution (EMI) license, which will allow the company to issue USDC and EURC stablecoins in a compliant manner across the European Union (EU) region.

Circle is the first stablecoin issuer in the world to comply with the EU’s landmark crypto regulatory framework, the Markets in Crypto-Assets Act (MiCA).

But what does this mean for the stablecoin industry? Let’s find out below.

Key Takeaways

  • The first phase of MiCA regulations was passed in June 2023 in the EU.
  • On June 30, 2024, MiCA rules to regulate stablecoins went into effect.
  • Circle’s USDC and EURC mint and redeem platform called Circle Mint is officially available to business customers across Europe.
  • Experts say regulations will create a “comply or vanish” scenario for crypto issuers in Europe.
  • Anndy Lian says “decentralization might not be a casualty” of the incoming crypto regulatory wave.

What is the Markets in Crypto-Assets Act (MiCA)?

The MiCA is widely regarded as the world’s most comprehensive law that covers how cryptocurrencies are regulated. The first phase of MiCA regulations was passed in June 2023 in the EU.

On June 30, 2024, MiCA rules to regulate stablecoins went into effect.

Issuers are now required to hold MiCA licenses to publicly offer and trade cryptocurrencies and stablecoins within the EU region.

Under the MiCA rules, issuers are required to stop the issuance of non-euro stablecoins if they exceed a limit of over 1 million stablecoin transactions or if the value of stablecoin transactions exceeds 200 million euros.

Other MiCA compliances require issuers to have an office in an EU country, implement anti-money laundering rules, and disclose risks about issued cryptos, a portion of reserve funds held as bank deposits, among others.

The final phase of MiCA regulations will be implemented by the end of 2024.

Crypto research firm Chainalysis said: “Previously, frameworks focused solely on anti-money laundering and counter-terrorist financing. MiCA aims to unify the currently fragmented regulatory landscape by establishing harmonized rules, providing legal certainty, protecting consumers and investors, and supporting the integrity and stability of the European financial system while fostering innovation.”

USDC Stablecoins for Financial Institutions

Now that Circle is compliant with MiCA’s regulatory obligation for stablecoins, it has opened up a new market for its USDC stablecoin.

Circle’s USDC and EURC mint and redeem platform called Circle Mint is officially available to business customers across Europe.

Institutions will now be able to leverage near-instant settlement, low transaction costs and 24/7 availability of Circle’s stablecoins. Businesses will also be able to provide stablecoin access to their customers through their app or website.

 

Incoming Crypto Regulations Means ‘Comply or Vanish’

The landmark stablecoin regulation introduced in Europe points to a future where only compliant stablecoins are considered legal and, therefore, easily accessible to the public through centralized crypto exchanges (CEX).

“Stablecoin offerings, both local and global, will either comply or ultimately vanish from the EU market in the short to mid-term, as evidenced by recent announcements from exchanges like Binance, Bitstamp, Kraken, OKX and others that are either delisting or phasing out non-compliant tokens,” said Circle’s Dante Disprate and Patrick Hansen in a blog post for The Bretton Woods Committee.

The duo added that the stablecoin industry in the EU will consolidate around regulated tokens. They said that the EU crypto market is expected to undergo “a massive transformation” as clear regulations and strong protections increase the EU’s competitiveness to host the next evolution of the crypto industry.

Expert views: Future of Stablecoins and Decentralized Finance

In conversation with Techopedia, Anndy Lian, an intergovernmental blockchain expert, said compliant stablecoins are poised to be a “tipping point” that has the potential to supercharge stablecoin adoption globally.

Lian said:

“Regulations build trust, especially for remittance and dollar exposure, attracting new users. Integration with traditional finance unlocks wider applications for payments and financial products … Challenges remain, but compliant stablecoins have the potential to supercharge global adoption.”

When asked about the future of decentralized finance (DeFi) in the face of inevitable crypto regulations, Lian added that “decentralization might not be a casualty” of the regulations that are currently reshaping the crypto landscape.

“The dream of a decentralized future for cryptocurrencies doesn’t have to be squashed by upcoming regulations. Instead, crypto can adapt and even thrive alongside these new rules.

 

“Regulations might not extinguish the desire for decentralization, but rather create a parallel, regulated crypto space that coexists with the existing one.”

The Bottom Line

The crypto industry is evolving with incoming regulations for the better or worse depending on how you look at it. The MiCA regulations are only the start as more regions including the US are yet to implement crypto rules in their jurisdiction.

One thing is for certain. The MiCA rules will deeply influence how regulations are framed in other nations.

 

 

Source: https://www.techopedia.com/usdc-becomes-compliant-as-mica-regulations-change-crypto-expert-analysis

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

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Why the USDC depeg is not a reason to panic

Why the USDC depeg is not a reason to panic

The crypto industry is currently experiencing anxiety due to concerns about the potential detachment of USDC, a stablecoin supported by US dollars. As an individual who closely monitors the market, I have been observing the situation and would like to share some of my personal views.

Firstly, It’s worth emphasizing that Silicon Valley Bank (SVB), responsible for holding the funds backing USDC, reportedly has enough assets to meet all withdrawal requests. According to the Federal Deposit Insurance Corporation (FDIC) reports as of December 31, 2022, SVB had approximately $209.0 billion in assets and about $175.4 billion in deposits. However, despite the impressive asset base, there are still concerns about the liquidity of SVB’s book and what percentage of a haircut would be expected if the bank were to experience significant losses.

This uncertainty stems from the fact that the bank’s underlying assets are not transparent, and there are no clear indications of how illiquid or risky these assets might be. As a result, there is a risk that if SVB’s assets experience significant losses or become illiquid, the bank may struggle to meet all of its obligations, potentially resulting in a depeg of USDC. This would significantly impact the broader crypto market, as USDC is widely used as a trading pair on various exchanges.

Secondly, another important aspect to consider regarding the stability of USDC is the financial backing provided by Circle, the company that issues the stablecoin. Circle holds 77% of their reserves in highly liquid instruments such as 1-4 month T-Bills, managed by Blackrock and held at BNY Mellon. This allocation of reserves provides significant security for USDC, as T-Bills are generally considered very safe and highly liquid investments.

The T-Bills held by Circle provide an absolute floor for USDC of around 0.77, meaning that even in the worst-case scenario, USDC should not depeg below this level. Furthermore, since T-Bills are highly liquid, they should be easily sold if Circle needs to raise funds quickly to meet unexpected obligations.

This provides additional protection for USDC and helps mitigate any potential risks associated with the stablecoin. It’s also worth noting that Circle’s retained earnings and interest income should theoretically be sufficient to cover any expected “losses” it may be exposed to from SVB. This means that even if SVB were to experience significant losses or become illiquid, Circle should be able to cover any potential losses without impacting the stability of USDC.

Thirdly, another point to consider when assessing the potential impact of a depeg of USDC is the maximum exposure of Circle. This company issues the stablecoin to Silicon Valley Bank (SVB), the bank that holds the funds backing USDC. Experts estimate that Circle’s maximum exposure to SVB will be around $198 million, which is a relatively small percentage of the total funds backing USDC, which is approximately $3.3 billion.

While this may seem like a large sum, it’s important to note that Circle has significant financial reserves and should be able to absorb any potential losses without significantly impacting the stability of USDC. The crypto market as a whole has grown significantly over the past few years, with a current market capitalization of close to $1 trillion. In this context, the potential loss of $198 million would represent a relatively small percentage of the overall market. It should not significantly impact investor confidence or the stability of the crypto market as a whole.

Fourthly, the relationship between Coinbase and Circle. Another factor that may reassure investors in USDC is the relationship between Coinbase and Circle. Coinbase, one of the largest crypto exchanges in the world, holds $4.4 billion on its balance sheet and is a 50-50 partner with Circle in the Centre Consortium, which oversees the technical aspects of USDC. Given its significant investment in USDC and its partnership with Circle, Coinbase has a vested interest in ensuring the stability of the stablecoin.

This may mean that Coinbase could provide additional support to Circle if needed, further strengthening the stability of USDC. Coinbase has a strong reputation in the crypto industry and has demonstrated a commitment to regulatory compliance and financial stability. As such, the involvement of Coinbase in the management of USDC may provide an additional layer of confidence for investors.

While there are concerns about the potential depeg of USDC, several possible scenarios could play out over the next week. One possibility is that Coinbase, as a partner in the Centre Consortium and a major investor in USDC, may provide additional support to Circle if needed. This could take the form of additional financial backing or other resources to help ensure the stability of USDC. Another possibility is that Circle may take on debt or credit facilities from BlackRock or other institutional lenders to help shore up its financial position.

This could provide additional liquidity and help to address any concerns about the stability of USDC. It’s also possible that the Federal Reserve may intervene to support Silicon Valley Bank (SVB), the bank that holds the funds backing USDC. While this may be seen as an unlikely scenario, it cannot be completely ruled out, given the potential impact of a destabilization of USDC on the broader financial system.

Several actions can be taken regarding risk management for investors who hold USDC. One option is to hedge USDC/USDT perpetual swaps by shorting USDC through centralized or decentralized exchanges (CeFi or DEX). This strategy can help offset potential losses if the value of USDC were to decline. Another strategy is to borrow USDC against USDT on lending protocols. However, this option may be limited due to the potential risks associated with USDC. Investors may also consider trading out of USDC and into USDT on CeFi exchanges at a rate of around 0.95 if they are concerned about the stability of USDC.

This can help to reduce exposure to any potential risks associated with USDC. It’s also important to note that investors should avoid sending USDC to Circle for redemption. While the risk of gated redemption is relatively low, there is still a potential risk of this occurring. As such, it’s recommended that investors hold USDC in a safe and secure wallet and take appropriate risk management measures to protect their investment.

In conclusion, investors must stay vigilant and informed during market volatility, such as the current unease in the crypto sector surrounding USDC. It’s important not to make impulsive decisions based on uncertainty or unpredictability but to remain composed and clear-headed. One way to stay informed is to follow updates and analyses from reliable sources, such as financial news outlets or industry experts.

It’s also important to understand one’s investment portfolio, including any potential risks or vulnerabilities. Taking a measured and calculated approach to investing can help mitigate potential losses and protect one’s assets. By remaining watchful and well-informed, investors can navigate market volatility and uncertainty with greater confidence and clarity.

 

Source: https://cryptoslate.com/op-ed-why-the-usdc-potential-depeg-is-not-a-reason-to-panic/

 

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

j j j