The new rules impose limits on stablecoins pegged to non-Euro currencies. These coins will be restricted to a maximum of 1 million transactions and a total transaction value of €200 million (approximately $196 million) within the Eurozone. Major stablecoins like Binance USD, USD Coin, and Tether, which together account for 75% of crypto trade volumes, already exceed these proposed limits, raising concerns within the industry.

Potential Effects of the MiCA Rules

Crypto industry leaders have voiced concerns about the potential negative impact of these MiCA regulations on the EU’s competitiveness and innovation. Anto Paroian, CEO of ARK36, warned that the rules could limit the EU’s global influence. The European Crypto Initiative lobbying group, based in Brussels, also cautioned that these new regulations could be overly burdensome for the sector.

The DLT Pilot Regime Enables Stablecoin Trading Before Regulations

The European Union has also launched a pilot program allowing market participants to trade stablecoins before the regulations come into force. Rok Zvelc, the EU Commissioner, stated that participants can begin using these stablecoins for transactions and payments ahead of the official legal framework, which will take around two years to finalize.

This pilot program, known as the DLT Pilot Regime, allows both traditional and digital financial sectors to explore tokenised securities within a regulated environment. Single fiat currency-denominated stablecoins and e-money tokens are already defined under MiCA, and although the full regulations won’t be implemented until 2024, the pilot participants can start using these tokens for trading and payments now.

Zvelc emphasized during a European Commission webinar that the delay in adopting MiCA is unnecessary, and the tokens can be used in the market today. While the DLT Pilot program does not explicitly define these tokens, MiCA provides enough clarity for their immediate application.

The Impact of the DLT Pilot Program

The DLT Pilot Program is set to begin in March 2023 and will provide valuable insights into the future of distributed ledger technology (DLT) in capital markets. Participants in the program will be exempt from certain financial regulations, including the Markets in Financial Instruments Directive (MiFID) and the Central Securities Depositories Regulation (CSDR), as part of the blockchain experiment.

New participants not licensed under these bodies will need special permission from financial supervisors to join the DLT pilot. This setup allows crypto exchanges and service providers to participate in the sandbox without adhering to the broader EU financial regulations that traditional institutions must follow.

While no participants have been officially confirmed, BNY Fellow has expressed interest in joining the European Union’s experimental sandbox. The project will last for three years, after which the European Securities and Markets Authority (ESMA) will issue a report evaluating whether the program will be continued or concluded.

ESMA Approves the DLT Pilot Program

The European Securities and Markets Authority (ESMA) granted approval for the DLT pilot in September 2022. This decision followed ESMA’s decision to keep existing rules on data reporting and transparency unchanged for the duration of the DLT program. Both the MiCA regulations and the DLT Pilot Regime are part of the EU’s Digital Finance Strategy, which has been in place since September 2020.

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