MiCA regulatory framework lays regulatory groundwork for Europe, poses threat to stablecoin regulation in the U.S.

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Stablecoin Growth Stalls in the U.S. Market

Despite record-high cryptocurrency trading volumes in recent years, the U.S. market has faced challenges over the past year, one of which is the emerging trend of stablecoin trading activity shifting away from U.S. regulated platforms. According to a research report released by the cryptocurrency analysis firm Chainalysis,this trend may reflect the obstacles stablecoins and digital assets are encountering in the U.S. due to slow regulatory progress.

Decrease in the Proportion of Stablecoins Flowing into Regulated U.S. Exchanges by 2024

Until 2023, the trading volume share of stablecoins on compliant exchanges in the U.S. had been steadily increasing, aligning with the global growth in stablecoin adoption. However, in 2024, this trend started to reverse, as shown in the chart below.

This shift reflects a relative decrease in stablecoin usage in the U.S. market, attributed to the rapid growth of stablecoin adoption in emerging and global markets compared to the slower growth rate in the U.S. As a result, more stablecoin trading is happening on exchanges outside U.S. regulation, indicating that global demand for stablecoins is outpacing that of the U.S.

Faster Growth in Stablecoin Activity in Non-U.S. Markets

As shown in the chart below, stablecoin trading volumes have increased in both U.S. regulated and non-U.S. regulated exchanges, but the growth rate is more significant in non-U.S. markets. This does not imply a significant decrease in U.S. market participation but rather indicates the expanding influence of stablecoins in emerging markets and jurisdictions outside the U.S.

Incomplete U.S. Regulation, EU's MiCA Regulation Seizing the Stablecoin Market Opportunity

A spokesperson from Circle pointed out that the lack of clear regulatory framework in the U.S. allows other financial centers such as the EU, UAE, Singapore, and Hong Kong to attract stablecoin projects with more attractive regulatory frameworks. They also mentioned, "Through the MiCA regulation, Europe has achieved what the U.S. has not yet accomplished: providing legal and regulatory clarity for the entire digital asset market."

Introduction to MiCA Regulation

The Markets in Crypto Assets Regulation (MiCA) came into effect in June 2024, providing a regulatory foundation for stablecoins in the EU.

The MiCA framework officially came into effect for stablecoin issuers in June, requiring them to obtain an Electronic Money Institution (EMI) license in at least one EU member state to operate legally in all 27 member states. The EMI license is a financial license that allows companies to issue electronic money, prepaid cards, and mobile payments. This provision aims to protect users and promote innovation in the cryptocurrency field.

Can U.S. Stablecoins Recreate the Eurodollar Scene in Europe?

The uncertainty in stablecoin regulation is akin to the past "Eurodollar" market situation.

The "Eurodollar" market refers to U.S. dollar deposits held in financial institutions outside the U.S. that are not directly regulated by the U.S. As the market initially had a small scale and did not attract U.S. policymakers' attention, it inadvertently promoted the internationalization of the U.S. dollar, solidifying its position as a global reserve currency.

However, the current stablecoin regulatory situation is different. The lack of a clear regulatory mechanism has led to the gradual shift of stablecoin development overseas. If the U.S. continues to lag in regulation, stablecoins may not be able to consolidate the global status of the U.S. dollar as the "Eurodollar" did, and may even switch to other fiat currencies as a benchmark. This not only risks the U.S. missing out on stablecoin-related economic activities but also potentially weakens the influence and authority of the U.S. dollar in global finance and chain commerce.

Current Development of U.S. Stablecoin Laws

While the U.S. faces challenges in stablecoins, there has been some progress. Circle noted that the Stablecoin Act 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 counter-terrorism financing (CFT) obligations for stablecoin issuers. This is crucial for maintaining the influence of U.S. stablecoins in the global market.