The daily transaction caps imposed by the European Union's Markets in Cryptoassets (MiCA) legislation are being criticized for potentially hindering the use of stablecoins. MiCA, which was signed into law on May 31, introduced the world's first regulatory guidelines for cryptocurrencies. However, one of the controversial measures is a €200 million ($219 million) daily transaction cap on private stablecoins like Tether and USD Coin. Legal directors and partners at Clyde & Co, Chander Agnihotri and Rachel Cropper-Mawer, suggest that regulators should reconsider the daily quota , as it may dampen the use of large stablecoins.
Stablecoins are designed to mimic the value of fiat currencies, primarily the US dollar, and were introduced to address the price volatility of cryptocurrencies like Bitcoin and Ethereum. Agnihotri argues that regulators have valid concerns about private stablecoins, Especially in light of the collapse of TerraUSD (UST) and the brief decoupling of USDC. The closer ties to the traditional financial system through reserves make the failure of larger stablecoins more concerned.
Cropper-Mawer clarifies that the €200 million cap does not constitute a ban but rather requires issuers to halt further distribution and work with regulators to stay below the cap if exceeded. However, she predicts that the use of certain larger stablecoins will be quickly suppressed , and she expects lawmakers to revisit this issue. Cropper-Mawer suggests that the limitations imposed by the current rules may lead to the faster adoption of central bank digital currencies (CBDCs).
Nevertheless, she acknowledges that MiCA lawmakers are unlikely to ignore the potential negative impact of these regulations, especially considering the prevalence of private stablecoins in other markets. The unrestrictive use of stablecoins in other jurisdictions could detriment mentally affect the crypto market in the EU. Despite some criticism, Agnihotri notes that feedback on MiCA has been mostly positive, emphasizing that the legislation enables startups and smaller entities to access markets, fostering innovation and competition. Adjustments to certain aspects of the legislation may be necessary.
Paolo Ardoino, Tether's CTO, emphasizes the need for continued dialogue and possible revisions to the MiCA framework before issuing guidelines for private stablecoin providers. He praises MiCA as a commendable initiative, describing it as the most comprehensive legislation the industry has seen so far. Ardoino acknowledges that the daily transaction cap could affect private stablecoins like USDT but points out that the restrictions apply when stablecoins are used for specific purposes according to the legislation.
Critics have voiced concerns about MiCA being overly cautious and insufficiently addressing threats to wider financial market stability. Cropper-Mawer highlights that the success of MiCA will depend on enforcement at the member state level and continued scrutiny, considering the rapid pace of innovation in the crypto industry. MiCA will be implemented after publication in the Official Journal of the European Union, and regulations and guidelines for cryptocurrency companies are expected to be put into effect in 2024.
