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Binance to Restrict Most Major Stablecoins – Tether at Risk?

Last Updated June 4, 2024 9:41 AM
Giuseppe Ciccomascolo
Last Updated June 4, 2024 9:41 AM

Key Takeaways

  • EU’s new regulation is tightening its grip on cryptocurrencies.
  • In response, Binance restricted trading on non-regulated stablecoins.
  • Tether and other issuers are working to have their stablecoins approved in the EU.
  • Many currently offered stablecoins may be operating illegally in Europe.

Major exchanges like Binance are taking steps  to comply with new European rules known as MiCA (Markets in Crypto-Assets Regulation) . This includes restrictions on unauthorized stablecoins, which pose restricting risks for major coins like Tether.

But while Tether and Circle are working to have their coins approved for trading in the EU, there seems to be some confusion about how MiCA works.

Binance Restricts Trading On Major Stablecoins

Binance announced  changes to comply with new European Union cryptocurrency regulations. These regulations, known as MiCA (Markets in Crypto-Assets Regulation), aim to bring more oversight to the crypto space.

One key change is the restriction of unauthorized stablecoins for EU users. These are stablecoins that haven’t met the EU’s regulatory standards. While Binance won’t completely remove them from the platform – so won’t delist them -, users won’t be able to use them for all features.

EU users can now expect limited functionality, but trading is still possible. In a nutshell, unadvertised stablecoins won’t be accessible through features like the conversion tool. This means users can’t easily convert other cryptocurrencies into these specific stablecoins. However, users can likely still trade these stablecoins with other cryptocurrencies “for now.” Future restrictions are not out of the question.

Binance is taking a phased approach, aiming for a smooth transition for users. This means the availability of unauthorized stablecoins might further decrease over time.

Which Stablecoins Are Regulated In EU

Only a handful of stablecoin issuers hold this license currently, notably Iceland’s Monerium  (EURe) and the US exchange Gemini (GUSD). This means major players like Tether (USDT), with its massive $112 billion market cap, could face restrictions.

Tether, the world’s dominant stablecoin, has already faced headwinds in Europe. Crypto exchange OKX recently aimed to delist USDT trading pairs for European users, highlighting the impact of upcoming regulations. Tether has expressed interest in EU regulation, but its future remains uncertain.

While Tether has reportedly applied for EU regulation, it’s unclear how many other issuers have followed suit. Circle has applied to be recognized as an EMI in the EU – basically, an online bank -, and, once obtained this status, its stablecoin will be regulated in the EU. However, with USDT accounting for a whopping 73.5% of global crypto trading volume, its fate in the EU market is being closely watched.

To ensure EU approval, Tether has secured a partnership with BDO Italia , a branch of the world’s fifth-largest accounting firm. BDO Italy will audit Tether’s reserve fund assurances and attestation reports. Previously, Tether released audit reports quarterly, but to enhance transparency, they’ve committed to switching to a monthly release schedule. This provides investors and institutions with more frequent updates on Tether’s financial health.

What Is MiCA?

Binance, and likely other exchanges, are taking steps to comply with MiCA in Europe. This means restricting trading of non-regulated stablecoins, but not necessarily delisting them entirely. The expectation is that major players like Tether will eventually obtain the necessary licenses and become compliant.

However, it’s important to clarify a common misconception . MiCA doesn’t introduce entirely new rules for fiat-backed stablecoins. Instead, it reinforces existing regulations under the Electronic Money Directive (EMD) established in 2000.

This because the EMD defines e-money as a digital alternative to cash, similar to pre-paid cards. Furthermore, since fiat-backed stablecoins represent a claim on the issuer, they fall under this definition. Under the EMD, only authorized Electronic Money Institutions (EMIs) and credit institutions can legally issue fiat-backed stablecoins in the European Economic Area (EEA).

Many currently offered stablecoins might already be operating illegally in Europe due to a lack of proper authorization. MiCA simply clarifies existing law and imposes additional requirements for compliant issuers starting from July 2024.

Binance’s move reflects Europe’s existing regulatory landscape for fiat-backed stablecoins. While some may be restricted for trading, MiCA aims to bring more clarity and oversight to this growing digital asset class.

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