They fear negative effects due to the departure of USDT from the European market

On July 1, the rules for stablecoins of the Regulation for the Cryptoasset Market (MiCA) come into force in the European Union (EU). They are part of the measures taken by the region’s authorities to control, mainly, the circulation of currencies pegged to the dollar. This, as a mechanism to “preserve the stability of the euro.”

As the days go by and the date approaches, expectations among investors and businessmen in the sector increase. And although since the approval of the Regulation, in April of last year, it is known that the issuers They must meet new requirements to continue circulating in the market European, the debate on the consequences of the law is open.

Despite the initial enthusiasm generated by MiCA, concerns are gaining strength, particularly regarding dollar stablecoins. Pessimism grew when it was learned that USDT, the dominant stablecoin in the market, will enter the list of unregulated ones by not being able to comply with the requirements of the regulation.

As reported by CriptoNoticias, Tether CEO Paolo Ardoino explained the difficulties the company has in meeting the required capital and reserve standards. Although he assured that they continue talking with regulators and They hope to reach an agreement in the futureUSDT is expected to leave the regulated market immediately.

Taking into account the dominance that tether traditionally exercises around the world, some analysts predict that its departure from Europe does not generate many effects in the market.

“If it continues its tendency toward dominance, everything may go well,” say Investment Strategies analysts. “But if this regulatory change has the effect of leaving the continent in its own backwater while the world moves in a different direction, “Europe could find itself isolated.” It would occur as a consequence of what is known as “regulatory arbitration.”

«The limitation of USDT will force European investors to look for other stablecoins when using services in Europe while trading with options other than the usual ones. This could alter market liquidity and stability, warns analysis firm Steno Research.

As the European market is the only one that will be applying stricter rules, They fear that this situation will isolate the EU.

The European Blockchain Association has also spoken out on this issue, warning about the repercussions of the legislation on the ecosystem, foreseeing the imminent departure of stablecoins in dollars.

For a few months now, the group has been recommending to the authorities a review of the standards, pointing out its possible negative effects.

European Union investors will likely face extreme short-term price volatility, driven by dislocation effects (being forced to operate under stressed conditions). In the medium and long term, fragmented liquidity would make trade more expensive, reduce competition and drag down innovation in the EU.

European Blockchain Association.

Market makers share this vision. See possible serious shortage of liquidityas operators rush to convert from euros to dollars on platforms outside the region, in order to continue using tether.

The impact of a market divided between regulated and unregulated areas, too volatility will increase.

It will be difficult for euro stablecoins to fill the void

Given that with USDT leaving the market, it will potentially no longer have to compete with Europe’s number one stablecoin, it is believed that euro stablecoins will come to the fore.

As the euro is Europe’s native currency, it is thought that these currencies may become the preferred option. But will they be able to fill the tether space? With some exceptions who rely on an “explosion of new euro stablecoins”, most analysts doubt that they can cover the huge gap that USDT leaves in the market.

Currently, stablecoins accumulate a market capitalization of 162,613 million dollars, of which, USD 111,568 million belong to USDT (almost 70%). Compared to these figures, stablecoins referenced to the euro They only add up to a capitalization of 243.1 million of dollars.

It is said in this regard that, due to the low trading of these currencies, it is not realistic to expect them to reach the level of those backed by dollars and replace them in transaction pairs. This, even though a rebound in trading volume has been observed in recent months.

Many They put hope in USDC and its euro ally EURCwhich already have the approval of the European authorities and will remain active and regulated in the eurozone. The aspiration is that these Circle stablecoins, along with the euro stablecoins, gain ground and gradually take over the market.

Most exchanges do not have clear rules

So far, most reports predict the exile of stablecoins pegged to the US dollar from Europe – with few exceptions. A situation that is anticipated given the announcements made by exchanges such as OKX, Kraken and Binance.

The first has already said that it will stop trading pairs in USDT, the second is evaluating settling dollar-backed currencies in euros. Binance, for its part, reported restrictions on what it classifies as unregulated stablecoins.

Otherwise, there are no known announcements from other platforms. In statements to the media, Oliver Linch, CEO of Bittrex Global and former lawyer at Shearman & Sterling, assured that as the critical deadline of June 30 approaches, companies they continue to overcome some ambiguities inherent in the new rules.

He explained that uncertainty has become a major problem for the EU, while legal experts They make efforts to provide advice on the basic requirements and national regulators face challenges in their application. However, Linch hopes that many of the rules will be implemented gradually.

Were the European authorities wrong?

MiCA will thus come into force, for many initially as a kind of “shock therapy”. What remains is to wait the next few months to evaluate the results.

While the days for its application are counted and regulators defend their strategy for being one of the first laws for stablecoinsit is worth quoting the comments of the French investor and lawyer, Hubert de Vauplane.

In his article “Stablecoin: the strategic mistake of the ECB”, Vauplane questions the assertiveness of the European Central Bank with this regulation. His arguments put on the table the reasons that led European authorities to regulate stable currencies, seeing them as an enemy that attacks monetary sovereignty region of.

The lawyer recalls that the objective of most stablecoins It is not a substitute for legal tender coinsnot even having the attributes of it.

«Stablecoins are intended to be a bridge between the fiat world of traditional finance and the crypto world (…) It is true that buyers of stablecoins must first spend euros (in rare cases) or dollars (9.5 times out of 10) , but these operations do not affect the monetary supply and, therefore, should not pose a systemic risk for the financial sector.

Hubert de Vauplane.