The MiCA Regulatory Framework Lays the Foundation for European Regulation Posing a Threat to US Stablecoin Regulation
Stagnation of Stablecoin Growth in the U.S. Market
Despite reaching record highs in cryptocurrency trading volume in recent years, the U.S. market has faced several challenges over the past year. One of these challenges is the trend of stablecoin trading activity gradually shifting away from U.S.-regulated platforms. According to a research report released by blockchain analysis firm Chainalysis, this trend may reflect the obstacles stablecoins and digital assets encounter amid slow regulatory progress in the United States.
Decline in the Proportion of Stablecoins Flowing into U.S.-Regulated Exchanges in 2024
As of 2023, the trading volume share of stablecoins on U.S. compliant exchanges had been steadily rising, aligning with the global growth in stablecoin adoption. However, in 2024, this trend began to reverse, as shown in the image below.
Proportion of Stablecoins Flowing into U.S.-Regulated and Non-U.S.-Regulated Exchanges
This shift reflects a relative decline in stablecoin usage in the U.S. market, due to the surge in stablecoin adoption in emerging and global markets, while the growth in the U.S. market has been relatively slow. Consequently, more stablecoin transactions are occurring on non-U.S.-regulated exchanges, indicating that global demand for stablecoins is growing faster than in the U.S.
Faster Growth of Stablecoin Activity in Non-U.S. Markets
As illustrated in the image below, the trading volume of stablecoins has increased in both U.S.-regulated and non-U.S.-regulated exchanges, but the growth is more pronounced in non-U.S. markets. This does not imply a significant decline in U.S. market participation, but rather shows the rapidly expanding influence of stablecoins in emerging markets and non-U.S. jurisdictions.
This image shows the growth in the value of stablecoins received by U.S. and non-U.S.-regulated exchanges.
Incomplete U.S. Regulation, EU MiCA Regulations Seize the Stablecoin Market Initiative
A Circle spokesperson noted that the current lack of clear regulatory frameworks in the U.S. allows other financial centers (such as the EU, UAE, Singapore, and Hong Kong) to attract stablecoin projects with more appealing regulatory frameworks. Additionally, they mentioned, “Europe, through the MiCA regulations, has successfully achieved what the U.S. has not: providing legal and regulatory clarity for the entire digital asset market.”
Introduction to MiCA Regulations
The Markets in Crypto-Assets (MiCA) regulation, effective in June 2024, provides a regulatory basis for stablecoins in the EU.
The MiCA framework officially takes effect for stablecoin issuers starting in June, requiring them to obtain an Electronic Money Institution (EMI) license in at least one EU member state to operate legally across the 27 member countries. An EMI license is a type of financial license that allows companies to issue electronic money, prepaid cards, and mobile payments. Reportedly, this regulation aims to protect users while simultaneously promoting innovation in the cryptocurrency sector.
Can U.S. Stablecoins Reclaim the Glory of Eurodollars?
The regulatory uncertainty surrounding stablecoins is similar to the past situation of the “Eurodollar” market.
The “Eurodollar” market refers to U.S. dollar deposits held in financial institutions outside the United States, which are not directly regulated by the U.S. Due to its initially small market size, it did not attract the attention of U.S. policymakers but inadvertently promoted the internationalization of the dollar, solidifying its status as a global reserve currency.
However, the current regulatory situation for stablecoins is different. The lack of a clear regulatory mechanism has led to the gradual development of stablecoins overseas. If the U.S. continues to stall on regulation, stablecoins may not consolidate the dollar’s global position like the “Eurodollar,” and might even shift to being based on other fiat currencies. This would not only cause the U.S. to miss out on stablecoin-related economic activities but could also weaken the dollar’s influence and authority in global finance and on-chain commerce.
Current Development of U.S. Stablecoin Legislation
Although facing challenges, the U.S. is not entirely without progress in the realm of stablecoins. Circle pointed out that the stablecoin bill advanced by the House Financial Services Committee in July 2023 could provide the necessary regulatory clarity for the U.S. market to remain competitive. They urge Congress to pass this bill on a bipartisan basis and establish clear Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) and sanctions obligations for stablecoin issuers. This is crucial for U.S. stablecoins to maintain their influence in the global market.
