Uphold, a New York-based cryptocurrency exchange, announced the delisting of six stablecoins, including Tether (USDT), to comply with the upcoming Markets in Crypto Assets (MiCA) regulation in the European Union. This decision aligns with the MiCA regulation, which takes full effect on June 30, 2024, and requires all digital assets to comply with its regulations. The delisting of USDT raises concerns about its future in the region.

According to Tim Wang, COO of Elixir, the short-term effects may lead to market dislocation for liquidity and trading markets due to USDC and USDT dominance on centralized exchanges. Wang also noted that the US dollar-backed stablecoins and assets are still the primary form of collateral in the crypto markets, as Euro stablecoins have failed to gain much adoption.

The new EU crypto laws impose stringent regulations on fiat-backed stablecoins and e-money tokens exceeding a specific adoption threshold as defined by seven quantitative and qualitative indicators. This system places oversight with the European Banking Authority instead of national authorities.

Key provisions of MiCA include a 1:1 backing of fiat-based stablecoins with liquid reserves, custodial separation of reserve assets, and a prohibition on algorithmic stablecoins. Uphold is not the only one to have caved under pressure, as several major crypto exchanges, such as Kraken, Binance and OKX, have made certain changes to their stablecoin listing policies.

While the upcoming MiCA regulations in the EU could set a precedent influencing crypto regulations in other regions, including the US, the provisions for stablecoin may not hold the same importance. Unlike other regulatory frameworks that originated in Europe and were adopted in the US, Wang believes that stablecoin regulation will be more complex since “stablecoin hegemony” will increasingly become a contentious political topic.

The delisting of USDT by Uphold may be a harbinger of things to come, as Europe’s path-breaking Markets in Crypto-Assets Regulation (MiCA) regulatory regime takes effect at the end of June. Off-shore stablecoins may face challenges, but in the long run, MiCA should provide a safer, stronger ecosystem for stablecoin issuers and users.

Market observers were hardly shocked by the news, as Christian Catalini, the founder of the Massachusetts Institute of Technology Cryptoeconomics Lab, said he was “not surprised at all by the delisting,” adding that “the stablecoin landscape will evolve substantially across the globe as new regulation is passed, and we will see entry by new players — many of which won’t be companies that started in crypto and are coming from traditional banking and fintech.”

Arvin Abraham, partner at United Kingdom-based law firm Goodwin Procter, expects more of the same, saying that “post-MiCA, if a stablecoin is no longer compliant, we can expect exchanges to drop it from the exchange for European customers.” Because none of the world’s largest stablecoins are European, it follows that in the EEA, at least, one could see “a significant shifting of the landscape following MiCA coming into effect,” suggested Abraham. Some of the current leaders may have to bow out if they won’t, or can’t, get compliant.

MiCA, with its stringent requirements for both e-money tokens and asset reference tokens, will undoubtedly impact stablecoin offerings in the European Union. The challenge for stablecoin issuers is they will now need to be an EEA entity and authorized as an Electronic Money Institution firm in the EEA. “This is problematic for existing stablecoin issuances, and the timeline is now very short, with June 30, 2024, being the last date to meet the new regulatory requirements,” Jean-Baptiste Graftieaux, global CEO at France’s Bitstamp cryptocurrency exchange, told Cointelegraph, and “we are closely monitoring developments in this area.”

For non-European issuers, the requirement for the issuer to have an entity established and authorized in an EU member state is the most significant unique cost. But it isn’t just off-shore issuers who will face challenges. For all issuers, significant additional burdens come from the requirements to maintain 1:1 reserves to cover claims; provide permanent redemption rights to holders of tokens; and for stablecoins with a value exceeding 100 million euros to provide quarterly reporting to their EU home state regulator.

Jon Helgi Egilsson, co-founder and chairman of Monerium, a company issuing compliant on-chain fiat stablecoins in Europe, and former chairman of the supervisory board of the Central Bank of Iceland, told Cointelegraph that most stablecoins offered in Europe today are not compliant with existing electronic money rules — let alone those that will be implemented June 30 as a result of MiCA.