The proposed changes in regulations regarding stable cryptocurrencies in the European Union, as presented in the article, have sparked controversy and criticism from some authors. The main issue is the classification of stable cryptocurrencies as “significant”, which would entail imposing more stringent prudential requirements on issuers. According to the authors of the article, these requirements are burdensome and could significantly impact the profitability of issuers.
Under the classification of the Markets in Crypto-assets Regulation (MiCA), a stable cryptocurrency is deemed “significant” if it meets one of several specified criteria, such as the number of holders, reserves, daily transactions, links to the global financial system, etc. However, the authors emphasize that such classification is inappropriate and subjects many stable cryptocurrency issuers to overly strict requirements.
One of the main arguments put forth by the authors is the comparison between MiCA and regulations regarding globally systemically important banks (G-SIBs). In the case of G-SIBs, regulations are based on a gradual classification of banks, taking into account their significance and impact on the financial system. On the other hand, MiCA simply classifies stable cryptocurrencies as either “significant” or “insignificant”, which leads to improper classification of many issuers.
The authors express concerns about the introduction of more stringent prudential requirements for significant stable cryptocurrencies. These requirements include increasing reserve ratios, capital requirements for issuers, and the frequency of audits. According to the authors, these requirements will have a negative impact on the profitability of stable cryptocurrency issuers, potentially leading to limitations on their operations.
The authors also compare the MiCA proposals to regulations in the United Kingdom, which they argue are more issuer-friendly for stable cryptocurrencies. However, this article does not address the key point of the regime proposed by the UK, which requires the deposit of all reserves of a stable cryptocurrency in the central bank without any compensation. This requirement is far more burdensome than the anticipated EU requirements.
Ultimately, the authors emphasize that the proposed regulatory changes under MiCA are inappropriate and suggest separating the classification of stable cryptocurrencies from prudential requirements. They argue that the current requirements are too strict and could hinder the development of stable cryptocurrencies, which have the potential to contribute to innovation and efficiency in the financial system.