Circle’s opportunity to issue USDC and EURC under MiCA

Source: Aiying Payment Compliance

Circle announced that its USDC and EURC stablecoins have complied with the EU's new stablecoin regulations, becoming the first global stablecoin issuer to comply with the MiCA regulations. From July 1, Circle officially issued these two stablecoins to European customers.

This is an important milestone in the development of the Internet financial system, which means that one of the world's largest economies has established clear regulations to make stablecoins a legal electronic currency, pushing the cryptocurrency market into a new stage of mainstream payment, financial and commercial infrastructure.

Prior to this, Aiying wrote an article "European MiCA Act 10,000-word Research Report: Comprehensive Interpretation of the Far-reaching Impact on the Web3 Industry, DeFi, Stablecoins and ICO Projects" in which a profound analysis of the impact the bill will have on the industry, especially the stablecoin market. MiCA requires that stablecoins backed by fiat currencies must have sufficient liquidity reserves and obtain an "Electronic Money License (EMI)". In addition, the transaction volume cap and other asset support requirements for stablecoins are also stipulated. June 30 is an important node, requiring exchanges to remove stablecoins that do not meet the regulations.

Circle's USDC is expected to take market share from USDT, a larger competitor under Tether Holdings Ltd.. OKX, bianace, Bitstamp, and Kraken have taken measures to change their trading support for USDT in the EU recently this year, canceling the ability to use the stablecoin to buy or sell other crypto assets.

Circle's opportunity this time is historically similar to the rise of USDT

Aiying's article yesterday "【Ten Thousand Words Long Research Report】Stablecoin Track: Model, Operating Principles, Trends and Thinking of Hong Kong Stablecoins" mentioned that USDT's biggest advantage is the first-mover advantage, but its rise is mainly due to the support of exchanges and the outbreak of the market. At the beginning of the wild era of cryptocurrency, from the early Bitcoin blockchain to the later Ethereum ecosystem, USDT was a well-deserved pioneer and also accurately guessed the market explosion. Looking back at its currency holding addresses and market value, although it was established in 2014, it really began to rise in 2017. In addition to the bull market, USDT began to issue super-new shares that year, which was criticized by the market for manipulating the price of Bitcoin.

But in hindsight, this is a reversal of cause and effect. What is easily overlooked is that China closed virtual currency transactions that year, and more importantly, USDT was launched on the top three exchanges at the same time that year.

Also for now, according to Chainalysis's 2023 Cryptocurrency Geography Report, the region accounted for 17.6% of global trading volume between July 2022 and June 2023, a share that has helped Cricle clean up the house and let him gallop here due to the Mica Act.

And Cricle is almost certain to benefit from the growth and adoption of the euro digital currency (i.e., the euro stablecoin). The MICA Act establishes clear rules for the issuance and operation of euro digital currencies, and both banks and electronic money institutions are able to use euro stablecoins as a core part of their products and services. This means that the entire European regulatory financial sector can now adopt this network and significantly expand the application of stablecoins in business and finance. This market is very huge in Aiying's view.

Cricle's global compliance vision and starting point have made the present

Old hands in the currency circle know that USDC rose during the USDT crisis, and transparent, regulated, and more liquid asset reserves won the favor of customers. Looking back at the rise of USDC, the surge in its currency holding addresses usually corresponds to the decline in USDT holdings, usually when USDT has risk events, especially because it was the only stable currency trading pair of compliant exchanges Coinbase in the early days. This regulatory blessing brought great benefits to the early USDC market expansion, and it is also its main competitiveness to impact the first throne of USDT. Due to compliance, Defi protocols prefer USDC, and liquidity mining has enabled USDC to quickly increase in volume and have a greater advantage on the chain. After Maker introduced the regulated stablecoin USDC in 2020, USDC has become the first choice for major Defi protocols. Currently, MakerDAO, Compound and Aave are the main supporters of USDC. In addition to the benefits of regulation, more importantly, as the collateral of Defi protocols, USDC has lower volatility than USDT. The starting point advantage of USDC can be summarized as a compliance advantage.

What has Cricle done at the global compliance level?

Circle is registered as a money service business institution under the Financial Crimes Enforcement Network of the U.S. Treasury Department. It also follows the laws of various states on money transmission business and is regulated as a prepayment method. Compared with USDT, USDC's reserve assets are independent. Assuming Circle goes bankrupt, these reserve assets will be protected under the New York Banking Law and the Federal Bankruptcy Law.

Circle is the first crypto company to obtain an electronic money transmission license in the United States, the first company to obtain the New York BitLicense, and has obtained an electronic money issuance license in the United Kingdom.

Two years ago, the European Union reached the MiCA system, which was eventually approved by the European Parliament as the most comprehensive stablecoin and digital asset market regulations in the world. Circle then announced the launch of the euro stablecoin and made every effort to make it comply with the new EU regulations. France has been at the forefront of establishing crypto and digital asset regulation, and Circle's choice of France as its European headquarters proves that this decision is wise. The company works closely with the French financial regulator ACPR to make its business comply with MiCA regulations.

Circle has now obtained the ACPR’s e-money issuing license and has become a MiCA-compliant issuer of USDC and EURC stablecoins. European customers can now directly access USDC and EURC through Circle Mint France.

USDC thus successfully becomes the only major global stablecoin that complies with Europe’s new stablecoin regulatory regime. Circle has worked closely with regulators in France, the EU, and the US to achieve full fungibility of global stablecoins on blockchain networks, maintaining technological innovation while meeting strict regulatory standards.

Currently, all USDC and EURC in circulation in Europe are MiCA-compliant, and all EURC reserves held by Circle are managed under the supervision of regulators in France, while USDC reserves held in Europe are managed by global systemically important banks in the EU. USDC held by European users remains fully fungible worldwide and can be traded, transferred, self-custodied, used in DeFi, etc., without any changes.

In addition, we know that USDC is not directly exchanged with individuals. For USDT over 100,000 USD, you can directly exchange with Tether by paying the registration fee, but Circle operates according to customer levels. Only its partners or A-type users (exchanges, financial institutions) are eligible to exchange with Circle. Individual ordinary users (B-type) need to go through third-party channels (such as coinbase). From now on, Circle will issue and redeem USDC and EURC directly with major institutions in the European market through Circle Mint France, including exchanges, market makers, brokerage companies, consumer wallets, financial technology companies, payment institutions, banks and large enterprises. This market sales system greatly reduces the risk of money laundering for users and effectively manages and isolates risks through large B-ends.

Summary

The launch of the MICA Act heralds a major shift in market structure. It is expected that in the next year, major jurisdictions around the world (including Japan, the United States, the United Kingdom, Singapore, Hong Kong, the United Arab Emirates, Brazil, etc.) will launch comprehensive stablecoin rules, all of which require strict regulatory compliance. The gray market space in the barbaric era has also been continuously compressed, and will eventually merge with the compliant regulatory market. We are all witnesses of this financial era change.