Final Draft of EU Crypto Law Caps Stablecoin Transactions

The final text of the Markets in Crypto Assets (MiCA) law creating a broad legal framework for digital assets including cryptocurrencies and stablecoins has been passed by the European Commission, and goes to the European Parliament next week.

The document, released Wednesday (Oct. 5), features a number of key provisions, notably capping the use of non-euro-denominated stablecoins — a provision that appeared to have been dropped in draft late last month. It has been revived in this text, but the EP is not bound by this draft.

Broadly, it divides cryptocurrencies into three categories: stablecoins, which are called e-money; asset-referenced tokens, which are stablecoins backed by assets other than fiat, including algorithmic stablecoins like the TerraUSD that collapsed in a $48 billion run in May; and everything else.

The European Banking Authority (EBA) will oversee e-money stablecoins, while much of the rest will be overseen by the European Securities and Markets Authority (ESMA).

Neither decentralized finance nor crypto lending and borrowing are covered in the MiCA law.

While there are a number of controversial sections broadly opposed by the crypto industry, such as limiting stablecoin transactions and applying the Travel Rule’s know your customer (KYC) requirements to any transaction between hosted wallets — such exchange wallets — or from a hosted wallet to an unhosted one, it remains “a momentous development for the cryptocurrency space,” Anto Paroian, CEO and executive director of crypto hedge fund ARK36, said in an email.

It should, he added, be “seen largely in a positive light” and as an “inflection point.”

As the first “comprehensive attempt at regulating the crypto markets,” Paroian said MiCA “marks the moment when cryptocurrencies and other digital assets have received full legal recognition in one of the largest and most important jurisdictions of the world.”

This should, he said, send “a powerful message to regulators in other places — as well as to investors who may have previously been hesitant to interact with this space.”