There is a growing possibility that European Union (EU) citizens may soon be denied access to Tether’s USDT stablecoin. This potential shift is driven by the impending implementation of the Markets in Crypto-Assets (MiCA) regulatory framework, set to take effect in July. The new rules could significantly alter the landscape for stablecoins within the EU, impacting both issuers and users.

Kraken, a US-based cryptocurrency exchange, has announced that it is actively reviewing its support for USDT in the European market. Marcus Hughes, Kraken’s global head of regulatory strategy, revealed that the exchange is preparing for scenarios where it might become untenable to list certain tokens, including USDT. This consideration is directly linked to the stringent requirements MiCA will impose on stablecoin issuers.

Earlier this year, OKX removed the ability of EU users to buy or sell other Crypto assets using USDT.

Tether, the issuer of USDT, has acknowledged Kraken’s potential delisting but emphasized the continued focus on providing EUR liquidity for European customers. However, Tether’s CEO, Paolo Ardoino, has expressed concerns about certain aspects of MiCA and indicated that the company does not plan to seek regulation under the new rules in the medium term.

Implications of MiCA Regulations

The MiCA framework, finalized by the European Banking Authority (EBA), aims to introduce comprehensive regulations for the cryptocurrency market within the EU. Key provisions of MiCA include:

- Licensing Requirements: Issuers of asset-referenced and e-money tokens like USDT will need to obtain a license from a national financial authority in at least one EU member state by June 30.

- Higher Standards: Issuers must adhere to stringent standards in corporate governance, conflict of interest management, and reserve management. For instance, they must hold at least one-third of all funds at an independent credit institution.

- Stablecoin Restrictions: The sale of stablecoins to EU investors will be restricted, which could lead to significant changes in how these digital assets are traded and utilized within the region.

Where Africa Stands

In contrast, Africa has seen relatively little regulatory movement regarding cryptocurrency. The few regulatory actions that have occurred are within individual countries rather than at a continental level. Considering that stablecoins are not pegged to any fiat currency in Africa, regulatory action specifically targeting USDT or other stablecoins seems unlikely in the near future. Most regulatory efforts in Africa are expected to focus on controlling money flow, taxation, and crime prosecution.

Given the growing audience for cryptocurrency in Africa, exchanges need to start preparing for future regulatory frameworks. While the exact timing of such regulations remains uncertain, it is clear that regulation will eventually come to the African crypto market.

The Impact of the potential denial of USDT access to EU

USDT is the world’s most-traded cryptocurrency, widely used for moving digital assets between exchanges and storing funds away from token price volatility. Its removal could lead to decreased liquidity on decentralized and centralized platforms. With reduced liquidity, traders may experience wider bid-ask spreads and greater price volatility, making trading more challenging.

Although there are other alternatives such as Circle’s USDC. The issue is that most Crypto users are accustomed to USDT and there are lots of available routes for moving USDT among networks compared to USDC. There will thus be a need for Circle to create more routes for bridging USDC among networks. There is also a possibility that MiCA rules will be amended before July to accommodate USDT usage by EU citizens...