According to DefiLlama data, "the total market value of stablecoins has increased by 2.46% over the past week, currently reported at $182.489 billion. Among them, the total market value of USDT has increased by 0.07%, currently reported at $114.518 billion, with a market share of 69.82%." The issuance of stablecoins has become an important growth point in the cryptocurrency market.

The EU's Markets in Crypto-Assets Regulation (MiCA) is "one of the most comprehensive regulatory frameworks for digital assets to date." Since the enactment of this regulation, Coinbase has announced that it will delist USDT for European users by the end of the year, and other exchanges have taken similar actions. This article will outline the regulatory framework of MiCA for stablecoin issuers in the EU, providing compliance references for businesses and individuals entering the European crypto market.

In the Mankun blockchain, we have provided a basic introduction to MiCA (see: Interpreting the EU MiCA Regulation: How to Comply with Virtual Currency Custody Services? | Mankun Web3 Legal Education).

It is worth noting that due to space constraints, we cannot cover all compliance provisions in the regulation, but will select important parts and provide preliminary explanations based on the literal meanings of the articles. Such explanations cannot fully reflect the entire content of the provisions and are for reference only.

1. What are Stablecoins? Definitions and Classifications in MiCA

Stablecoins are a type of cryptocurrency that is pegged to the value of fiat currencies, commodities, or other cryptocurrencies, designed to leverage the advantages of cryptocurrencies while minimizing price volatility.

Currently, in the regulatory framework of the EU's Markets in Crypto-Assets Regulation (MiCA), stablecoins are primarily divided into Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs).

EMTs refer to currencies that maintain a stable value by pegging to one official currency. EMTs are akin to the "incarnation" of fiat currencies in the Web3 space and can be compared to CBDCs (central bank digital currencies) that can be issued by non-state entities:

‘Electronic money token’ or ‘e-money token’ means a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency.

ARTs, like EMTs, aim to maintain a stable value, but they achieve this through different means: by pegging to multiple assets, which may include various currencies, rights, etc.:

‘Asset-referenced token’ means a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies.

This structure theoretically diversifies risk, but due to the diversification of underlying assets, it requires relatively stricter supervision. Compared to traditional fiat currencies, which may be pegged to gold or backed by government credit, ARTs adopt a more flexible "portfolio" approach, allowing for risk diversification through various configurations of underlying assets or the choice of a specific asset to maintain stability. It can be said that ARTs provide more options for the design and innovation of stablecoins.

2. Overview of Regulatory Key Points for Stablecoin Issuers

The main content of the MiCA regulation focuses on the issuance and trading rules for ARTs and EMTs. Specifically, Articles 16-47 (31 articles in total) pertain to ARTs, while Articles 48-58 (10 articles in total) pertain to EMTs. The regulations for ARTs, being a more diverse type of stablecoin, are more detailed. For the sake of brevity, we will focus on ARTs in this overview. If we specifically emphasize ARTs or EMTs, we will indicate this in the name. If we refer to "stablecoins," it includes both ARTs and EMTs. According to the provisions of MiCA, the four relatively important compliance key points are:

1. Authorization to offer asset-referenced tokens to the public and to seek their admission to trading.
2. Obligations of issuers of asset-referenced tokens.
3. Reserve of assets for issuers of stablecoins.
4. Identification of "significant" asset-referenced tokens.

3. Seeking Authorization for Public Offering and Trading of ARTs

Eligibility Requirements

Regarding the issuance of ARTs, no one may publicly issue ARTs in the EU or seek authorization for trading unless that person is authorized as an issuer of ARTs and:

a) is a legal entity established within the Union and authorized by the competent authority of its home member state in accordance with Article 21; and

b) meets the requirements of credit institutions as specified in Article 17.

Crypto Asset White Paper

The crypto asset white paper for stablecoins (EMTs/ARTs) must contain all of the following information:

1. Information about the issuer of the e-money token/asset-referenced tokens.
2. Information about the e-money token/asset-referenced tokens.
3. Information about the public offering of the e-money token/asset-referenced tokens or its admission to trading.
4. Information on the rights and obligations attached to the e-money token/asset-referenced tokens.
5. Information on the underlying technology.
6. Information on the risks.
7. Information on the reserve of assets.
8. Information on the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used to issue the e-money token/asset-referenced tokens.

The provisions for ARTs and EMTs overlap for items 1-6 and item 8, but for item 6 regarding information on the reserve of assets, ARTs have such a provision while EMTs do not, indicating that MiCA has higher asset reserve requirements for ART cryptocurrencies.

Additionally, stablecoin issuers must publish the approved crypto asset white paper on their website, and as long as someone holds that cryptocurrency, the stablecoin issuer must continuously disclose information on the website.

Finally, if the content of the white paper is incomplete, unfair, unclear, or misleading, the stablecoin issuer shall bear legal responsibility for this.

In summary, the disclosure of the cryptocurrency white paper is crucial for ensuring investors' right to information, and stablecoin issuers should pay special attention to the completeness and accuracy of information disclosure to avoid unnecessary regulatory risks.

4. Obligations of Stablecoin Issuers

After obtaining authorization through the first step, issuers gain access to issue stablecoins in the EU, but this does not mean that everything is settled, and issuers can rest easy. The MiCA regulation has the following provisions regarding the obligations of issuers of ARTs (Obligations of issuers of asset-referenced tokens):

1. Obligation to act honestly, fairly, and professionally in the best interest of the holders of asset-referenced tokens: This obligation is primarily a guiding principle. Although abstract, it provides guidance for the subjective purpose of the issuer's actions.

2. Marketing Communications: Any marketing communication related to stablecoin trading should be clear, explicit, and consistent with the crypto assets. MiCA has strict requirements for the issuance and statements of stablecoins, aiming to avoid sensational or enticing statements and controlling speculation risks from the source.

3. Ongoing Information to Holders of Asset-Referenced Tokens: Stablecoin issuers must provide ongoing information disclosure at least once a month. The disclosure regarding stablecoin issuance is not a one-time event but a continuous obligation, and issuers must ensure that the issuance information is continuously accessible to regulatory authorities, investors, and other stakeholders.

4. Complaints-Handling Procedures: Stablecoin issuers should establish and maintain effective and transparent procedures to promptly, fairly, and consistently address received complaints. Issuers should create a comprehensive internal mechanism for handling and responding to complaints, focusing on resolving conflicts within the platform.

5. Identification, Prevention, Management, and Disclosure of Conflicts of Interest: Stablecoin issuers should implement and maintain effective policies and procedures to identify, prevent, manage, and disclose conflicts of interest among themselves.

6. Governance Arrangements: Stablecoin issuers should have sound governance arrangements, including a clear organizational structure, well-defined, transparent, and consistent responsibilities, effective procedures for identifying, managing, monitoring, and reporting risks they face or may face, as well as appropriate internal control mechanisms, including robust administrative and accounting procedures.

7. Own Funds Requirements: Stablecoin issuers must at all times have funds equivalent to the higher of the following amounts: (a) €350,000; (b) 2% of the average amount of asset reserves referred to in Article 36; (c) one-quarter of the fixed management expenses of the previous year. Issuers also need to maintain a certain "reserve requirement" to address potential risks associated with the issuance and trading of virtual currencies.

From the above provisions, it can be seen that MiCA imposes relatively comprehensive obligations on stablecoin issuers, especially regarding information disclosure (ongoing disclosure) and communication (marketing communications). MiCA aims to prevent fraud, speculation, and other risks from the source, protecting the interests of stablecoin holders; on the other hand, these regulations also impose higher compliance requirements on stablecoin issuers.

5. Asset Reserves of Stablecoin Issuers

From the obligations of stablecoin issuers, we can see that MiCA sets high requirements for issuers' own funds, and a separate chapter is dedicated to describing the asset reserves of stablecoin issuers (Reserve of Assets). Key points are summarized as follows:

1. Obligation to Have a Reserve of Assets, and Composition and Management of Such Reserve of Assets: Stablecoin issuers must maintain a reserve of assets "at all times." It is particularly noteworthy that the asset reserves should be legally separated from the issuer's assets to ensure that, in the event the stablecoin issuer is unable to meet its own debt obligations, creditors cannot claim the asset reserves. This provision requires stablecoin issuers to achieve asset segregation, and to mitigate this risk, issuers need to carefully consider the legal structure of their assets.

2. Custody of Reserve Assets: Stablecoin issuers should establish and maintain custody policies for reserve assets to avoid the risk of excessive concentration of reserve assets.

3. Investment of the Reserve of Assets: If stablecoin issuers wish to invest part of their asset reserves, they may only invest these assets in high liquidity financial instruments that minimize market risk, credit risk, and concentration risk. They should avoid exposing reserve assets to unnecessary risks for higher returns.

4. Right of Redemption: Stablecoin holders should have the right to redeem reserve assets at any time, and this right requires issuers to develop a comprehensive policy for this permanent redemption right.

5. Prohibition of Granting Interest: Issuers of EMTs are prohibited from granting interest related to EMTs, including compensation, discounts, etc.

Special Provisions for EMTs

Regarding the issuance and redemption of EMTs, MiCA stipulates that EMT issuers should issue at face value upon receiving funds, which is not reflected in the regulations for ARTs.

6. Identification of Significant Stablecoins

In addition to general stablecoins, MiCA also defines "significant" stablecoins, and stablecoin issuers should pay special attention to the additional regulatory requirements that may arise from "significant" stablecoins.

If the issued stablecoin (ARTs/EMTs) meets at least three of the following criteria during the reporting period, it may be classified as "significant" and subject to additional regulatory requirements:

• The number of stablecoin holders exceeds 10 million;
• The value of the issued stablecoin, its market capitalization, or the scale of the issuer's asset reserves exceeds €5,000,000,000;
• The average daily trading volume and average total value of the stablecoin during the relevant period exceed 2.5 million transactions and €500 million, respectively;
• The issuer of the stablecoin is designated as a core platform service provider by the European Parliament and Council (EU) Regulation 2022/1925;
• The significance of the issuer's activities on an international scale, including the use of stablecoins for payments and remittances;
• The interconnection of the stablecoin or its issuer with the financial system;
• The same issuer issues at least one additional stablecoin and provides at least one crypto asset service.

If a stablecoin is identified as "significant," the competent authority will impose additional regulatory requirements, such as requiring independent audits every six months from the date the EMTs are recognized as "significant." In addition, there are extra regulatory requirements regarding fund supervision and reporting obligations.

According to MiCA, in addition to being passively recognized as "significant," EMT issuers can also apply for their issued virtual currencies to be recognized as "significant."

In summary, stablecoin issuers should not only focus on general regulatory requirements but also pay special attention to the criteria for identifying "significant" stablecoins. Once the issued stablecoin is recognized as "significant," MiCA will impose higher regulatory requirements on the stablecoin issuer.

7. Quantoz: A Case Study of European Stablecoin Issuers

According to Bloomberg, Arnoud Star Busmann, CEO of the Dutch blockchain company Quantoz Payments, stated in an interview that Quantoz Payments will launch tokens pegged to the euro and the US dollar, and the company has obtained authorization from the Dutch central bank as an electronic money issuer. This lays a compliance foundation for its future market expansion.

Currently, "Circle's EURC and Société Générale's EURCV hold a 67% share of the euro stablecoin market, while Quantoz's EURQ is trying to carve out its own niche." This move not only demonstrates Quantoz's market ambitions but also reflects the efforts of emerging crypto companies to seek compliant development and innovative breakthroughs under the MiCA regulatory framework.

In the euro stablecoin market, Circle and Société Générale have established a strong market advantage, holding over half of the market share. In this context, Quantoz must seek a differentiation strategy to break through in a market dominated by existing giants.

As the MiCA regulatory framework is gradually implemented, the compliance threshold for the stablecoin market is continuously rising, which has profound implications for the existing market landscape. On one hand, emerging issuers like Quantoz, who actively embrace regulation, are rapidly rising; on the other hand, many established stablecoin issuers that fail to meet MiCA compliance requirements are gradually shrinking or even exiting the market. This trend indicates that the future stablecoin market will be dominated by issuers that excel in compliance, transparency, and risk management.

Conclusion

This article focuses on the regulatory provisions of MiCA for ARTs, summarizing the compliance key points for European stablecoin issuers facing MiCA in terms of authorization, obligations, reserves, and "significance." Due to space limitations, it cannot cover all aspects comprehensively, but aims to provide directional guidance for stablecoin issuers. For any business or individual planning to issue stablecoins in Europe, compliance is always the best way to manage the risks associated with virtual currency operations. To manage risks, in addition to strengthening their own compliance awareness and focusing on risk prevention, consulting compliance experts or lawyers is also an important way to mitigate the risks of stablecoin issuance.

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