We recently discussed whether the MiCA proposal (markets in crypto-assets) of the European Union had advantages for European users who own this type of asset. This proposal aims to protect users and financial markets from possible fluctuations that could weaken them.. However, there are some discordant voices that criticize the draft of this proposal, since it is feared that excessively stifling regulation will harm the purpose of decentralized finance.
In this sense, the new regulation will require service providers related to cryptocurrencies to have certain licenses. This, however, could be a barrier to entry for small businessessince sometimes to comply with all legal requirements it is necessary to have certain organizational skills, legal advice or capital.
Some of the criticisms point out that you cannot try to regulate crypto assets as if they were traditional investments. These, being included within decentralized finance, have very particular characteristics. Consequently, the new legislation should be very fine-tuned and have specific regulations. Another concern is the risk of regulating or prohibiting more activities than the text originally intended.
Can stablecoins have problems in Europe?
MiCA proposes to create a new ad hoc regulation for stablecoins, which a priori is not necessarily bad. Nevertheless, the requirements and prohibitions set forth in the law make it very difficult – or even unattractive – for stablecoin issuers to create or trade with them in Europe.
In the MiCa draft it is established that “in the EU no stablecoin can be offered to the public or admitted to trading on a crypto-asset trading platform, unless the issuer is authorized in the Union and publishes a “white paper” approved by the competent national authority (CNA)“.
Stablecoin issuers also have to invest reserve assets only in safe and low-risk assets, in addition to disclosing rights attached to asset-referenced tokens. As if this were not enough, it also prohibits stablecoin issuers and crypto asset service providers from granting interest to token holders referenced to assets, which can translate into a prohibition of practices such as yield farming or staking.
All of this may conflict with other policies such as central bank digital currencies (CBDCs). Interest-bearing accounts for stablecoins can be a good option to complement CBDCs, as CBDCs do not typically bear any interest, preventing funds from flying from commercial bank accounts to CBDCs if consumers perceive their deposits to be more risky.
Keep in mind that MiCA was drafted when private stablecoins were considered unregulated products that could imply risks for the financial system as a whole. Two years later, central banks and governments begin to have a different vision about stablecoins, perceiving them as a more manageable risk as long as they are properly regulated. Thus, regulations must find the right balance between mitigating or eliminating this risk and establishing a framework for the creation and issuance of stablecoins.
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