As a researcher with extensive experience in the crypto industry, I find myself constantly intrigued by the delicate balance between regulation and innovation. On one hand, regulations like MiCA aim to safeguard consumers and maintain financial stability – objectives that are undeniably crucial in our fast-paced digital world. On the other hand, rigid rules can sometimes stifle progress, as we’re witnessing with the recent developments at Coinbase and Tether.
As an analyst, I’ve noticed a wave of discontent among Coinbase users residing in Europe following the announcement that Coinbase would be ending its yield program for the stablecoin USD Coin (USDC). This decision, delivered via email to affected users on November 28, is due to the evolving crypto regulations within the European Union, specifically the Markets in Crypto-Assets (MiCA) framework. Consequently, the USDC rewards program will conclude on December 1 for users within the European Economic Area (EEA), encompassing all EU member states, along with Iceland, Norway, and Liechtenstein.
The email states that those qualified can keep earning rewards up until November 30th.
The news faced swift backlash from the cryptocurrency sector. In response, Paul Berg, CEO of Sablier – a crypto infrastructure provider, sarcastically expressed his gratitude towards the European Union on what used to be Twitter, saying, “I’m truly appreciative of the EU for shielding me from earning interest on my USDC holdings on Coinbase.
It’s amusing, isn’t it, how frequently rules hinder businesses from actions that undeniably benefit consumers?
— David “JoelKatz” Schwartz (@JoelKatz) November 29, 2024
MiCA (Markets in Crypto-Assets Regulation) seeks to strengthen consumer safety and preserve financial soundness. It sets stringent rules for stablecoin providers, categorizing them into two groups: asset-referenced tokens (which are backed by various assets) and e-money tokens (whose value is tied to a specific fiat currency like USDC).
Stablecoin issuers must keep enough assets to cover redemptions at any given moment. They must also adhere to operational and cautious business practices, which involve solid management systems and clear reporting. These rules are designed to protect the financial system, but some parts have caused challenges for cryptocurrency companies in terms of operation. One specific rule disallows interest payments or returns on tokens linked to assets based on ownership duration, making reward programs like Coinbase’s USDC incentives incompatible with MiCA.
This provision, outlined in Article 58 of MiCA, states:
To minimize the chance that asset-linked tokens are used primarily for long-term value storage, the creators of asset-linked tokens and crypto service providers should refrain from offering interest or rewards to token holders based on how long they hold the asset-linked tokens.
MiCA’s implementation is being rolled out in phases:
- As of 30 June 2024, regulations for asset-referenced tokens and e-money tokens, such as USDC, have become applicable.
- By 30 December 2024, the full MiCA framework will come into effect, covering all crypto-assets and service providers. Firms must secure necessary authorizations and comply with all operational standards by this deadline or face penalties or restrictions.
It’s not just Coinbase dealing with MiCA’s regulatory complexities. In fact, Tether, the company behind the world’s largest stablecoin USDT, recently announced on November 27 that it will be ending support for its euro-backed stablecoin, EURT. They attribute this decision to the tough regulatory environment in Europe as a major contributing factor.
In simpler terms, Tether explained that while they focus on meeting community requirements and maintaining sustainable operations, the rules governing stablecoins in the European Union are uncertain and not ideal for encouraging innovation. The company concluded that the present situation doesn’t promote the expansion of euro-backed stablecoins. Even though Tether stopped issuing EURT since 2022, their decision to discontinue the product highlights the increasing challenges faced by stablecoin issuers in Europe.
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2024-11-29 10:28