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EU regulators intervene once again to take unauthorised stablecoins off the market, Coinbase toys with delisting Tether under future US regulations, and New York warns of "memecoin" mania.
The European Securities and Markets Authority (ESMA) has published new guidance that requires crypto-asset service providers (CASPs) to accelerate their efforts to cut ties with unauthorised stablecoins.
Last week, ESMA informed CASPs that they are now expected to ensure compliance with the stablecoin provisions of the Markets in Crypto-Assets (MiCA) regulation “as soon as possible”.
At the latest, CASPs are expected to comply with these provisions by the end of Q1 2025.
Under MiCA, the only stablecoins that may be offered to the public are those issued by credit institutions or by holders of an electronic money institution (EMI) licence issued within the European Economic Area (EEA).
The issuer of the largest and most widely traded stablecoin in the EEA, Tether, has stated publicly that it cannot comply with MiCA and will not attempt to do so.
As covered by Vixio, Tether has managed to survive in Europe up until now due to various extensions on when CASPs are expected to enforce MiCA rules on their platforms.
Although MiCA came into effect for CASPs on December 30, 2024, EEA member states were given the option of a “grandfathering” period by ESMA.
This meant that CASPs would not be subject to MiCA enforcement for a period of six to 18 months (with most jurisdictions opting into the full, 18-month stay).
In December 2024 and over the New Year, the announcement of these grandfathering periods was celebrated by Tether and its defenders.
However, ESMA’s latest move means that those celebrations are likely to end prematurely.
In the new guidance, ESMA advises CASPs that they may offer non-MICA-compliant stablecoins on a “sell only” basis until the end of Q1 2025.
This means that customers may hold unauthorised stablecoins or withdraw them from CASPs during this period, but must not be allowed to acquire new units of the stablecoin.
With regard to all other MiCA provisions which CASPs are subject to, the grandfathering periods remain in place.
Coinbase would delist Tether in US if required, says CEO
This week, Coinbase CEO Brian Armstrong was asked whether he would delist Tether in the US if Congress were to enact MiCA-like regulations.
“If legislation in the US was passed and Tether couldn't come into compliance, we would have to delist it,” he said at Davos, while speaking to the Wall Street Journal (WSJ).
“There is a reason why we would want to continue to support it though, which is that there are a lot of people with Tether, and we want to give them an off-ramp, to help them transition to a system that we think is more secure.”
Questioned over Tether’s anti-money laundering (AML) and sanctions compliance record, Armstrong answered that he has “nothing negative” to say about Tether.
However, he did say that Coinbase’s preferred stablecoin is USDC, whose issuer, Circle, is a recipient of Coinbase investment support.
Circle, Armstrong went on to say, has consistently demonstrated a “higher bar of compliance” than Tether, which has led to USDC being more successful in developed markets than USDT.
Armstrong also noted that Circle already fulfils many of the criteria that stablecoin issuers are likely to be subject to under future US legislation.
For example, USDC is fully backed by US Treasuries and cash equivalents, undergoes annual audits, and Circle also publishes monthly attestations of its reserve assets.
Except for the annual audit, all of these features would be requirements for stablecoin issuers under the Clarity for Payment Stablecoins Act.
In July 2024, the bill was marked up with bipartisan support by the House Financial Services Committee, after which it was placed on the Union Calendar for debate and a future vote in the House.
New York regulator warns of memecoin mania
One day before the launch of the $TRUMP presidential memecoin, New York's financial regulator issued a consumer warning on “rapidly proliferating, sentiment-based” virtual currencies.
The New York State Department of Financial Services (DFS) said it is closely monitoring the rapid increase in the issuance of such coins, and warned consumers against investing in them.
“The platforms that enable the creation of these coins are not licensed by the DFS and therefore are not subject to the rigorous virtual currency standards in place to protect consumers,” it said.
“New Yorkers are further advised that even on regulated platforms, the prices of these coins are volatile and unpredictable and may experience significant decreases over a short period of time.”
Without using the term “insider trading” explicitly, the DFS also said that memecoins are often owned by a few individuals or a group of individuals associated with their creator.
Creators or insiders may engage in manipulative “wash trades”, it said, that create the false appearance of market activity.
“New Yorkers are advised that memecoins may be part of schemes in which the creators or their associates artificially inflate the price of the coins and then sell their own coins rapidly at an inflated price,” said the DFS.
“This reaps substantial profits while causing the price to crash (often called ‘pump-and-dump schemes’ or ‘rug pulls’).”
In its first two days of trading, the $TRUMP coin hit a market cap of $15bn, before dropping around 50 percent over the next three days.
Nonetheless, it is currently trading 440 percent above its initial listing price, according to CoinMarketCap.com.
