Lawyers Criticize MiCA’s Stablecoin Transaction Cap for Hindering Crypto Adoption

Lawyers have raised concerns that the daily transaction caps imposed by the Markets in Crypto-Assets (MiCA) legislation in the European Union could hinder the use of stablecoins and stifle crypto adoption. MiCA, which was signed into law on May 31, introduced regulatory guidance for cryptocurrencies, receiving overall positive feedback from the crypto industry. However, one of the controversial measures in the legislation is the daily transaction cap of €200 million ($219 million) for private stablecoins like USDT and USDC.

Legal experts from global law firm Clyde and Co, Chander Agnihotri and Rachel Cropper-Mawer, argue that the use of large stablecoins could quickly become stifled due to the transaction caps, suggesting that regulators should reconsider these limits. Stablecoins are designed to mirror the value of fiat currencies, primarily the US dollar, and were created to address the price volatility of cryptocurrencies such as Bitcoin and Ether.

The collapse of Terra’s algorithmic stablecoin UST in May 2022 and the temporary de-pegging of USDC following the collapse of Silicon Valley Bank in early 2023 have prompted regulators to focus on the regulation of private stablecoins. Agnihotri explains that regulators are particularly concerned about the potential impact of the failure of a larger stablecoin due to their stronger links to the traditional financial system through reserves.

Cropper-Mawer clarifies that the €200 million cap does not constitute a ban, but if the threshold is exceeded, issuers will be required to cease further issuance and work with regulators to bring transactions within the cap. However, she anticipates that certain larger stablecoins will face stifled usage, and she expects legislators to revisit the issue.

Given the potential dampening effect on stablecoin use, Cropper-Mawer suggests that central bank digital currencies (CBDCs) may flourish at a faster pace. She notes that MiCA lawmakers are likely aware of the potential negative impacts of these regulations, especially when considering the prevalence of private stablecoins in other markets, which could adversely affect the crypto market in the EU.

Although MiCA has faced criticism for its wide-ranging legislation, Agnihotri points out that feedback has mostly been positive. He emphasizes that MiCA will provide better market access to startups and smaller entities, fostering innovation and competition, but adjustments may be necessary, as with any legislation.

Tether’s chief technology officer, Paolo Ardoino, believes that continued discussions and potential revisions of the MiCA framework are crucial before guidelines are enacted for private stablecoin providers. While acknowledging the potential impact of the daily trading cap on stablecoins like USDT, Ardoino praises MiCA as a commendable initiative and the most comprehensive legislation seen in the industry to date.

MiCA will be implemented following publication in the Official Journal of the EU, and regulations and guidelines for crypto firms are expected to come into effect in 2024. The success of MiCA will depend on enforcement at the member-state level and whether lawmakers continue to review it in light of the rapidly evolving crypto industry.

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