Stable cryptocurrency provider StablR, which is based and regulated in Malta, has acquired a licence to operate as an Electronic Money Institution, which allows it to issue a stablecoin that is fully compliant with new European Union rules in the space.
The news comes at a significant juncture in the Markets in Crypto-Assets Regulation (MiCAR) implementation roadmap, when long-anticipated regulations for stablecoins in the EU finally came into force on 1st July 2024.
Gijs op de Weegh, Founder and CEO at StablR, said: "The last few years have created an environment with a clear demand for transparent, reliable, and trustworthy stablecoin alternatives. This demand is only set to grow further as MiCAR's stablecoin guidelines come into effect.”
Since the new stablecoin rules took effect in the EU, all stablecoin issuers in the EU must have an Electronic Money Institution (EMI).
MiCAR mandates strict adherence to rules regarding fiat backing, redeemability, transparency, and security. The new regulations require that all stablecoins are issued from the EU, while reserves are also held in the jurisdiction. Strict transaction limits will also be applied to non-euro-pegged stablecoins, dramatically increasing the importance of having EUR-denominated alternatives.
WhosWho.mt reached out to Professor Joshua Ellul, Director of the Centre for DLT at the University of Malta, and Ioannis Revolidis, a resident academic within the same institute, to understand what stablecoins are, how they are used, and why their regulation is a key part of the EU’s new crypto regulation.
“Cryptocurrencies come in many shapes and sizes,” says Prof. Ellul. “It was realised, early-on in the sector, that the price volatility of different cryptocurrencies limited their use. One argument often made is that price-volatile cryptocurrencies are not good forms of money, as a pastizzi should not cost one crypto-coin today, and then two crypto-coins tomorrow (due to price volatility against the Euro).”
He continues: “The constant price-volatility of cryptocurrencies made it challenging to trade or undertake transactions with respect to ‘real-world’ fiat currencies (like the Euro), leading to a need for a crypto-offering that provided a (rather) fixed or stable price in relation to our ‘real-world’ currencies (or assets).”
Prof. Ellul says that stablecoins were proposed to fill that gap, with a stablecoin being a “cryptocurrency that promises that one unit of the cryptocurrency will always be worth one unit of the real-world currency (or close enough to one unit of it).”
A simple promise is not enough though, as was seen in the dramatic collapse of the Terra stablecoin in 2022, which wiped out almost $45 billion in market capitalisation in a week.
“This is really where the EU’s MiCAR is helping to provide guarantees with respect to offerings in the EU market — by overseeing some aspects of the operators to provide reasonable assurances to consumers,” notes Prof. Ellul.
Dr Revolidis highlights the “crucial role” stablecoins play within the crypto ecosystem: “In effect, they serve as the unofficial banking system of the crypto world, providing a platform for users to hold or move their crypto assets within a more stable pricing environment, thereby mitigating price volatility. Moreover, stablecoins function as a conduit between cryptocurrencies and official currencies, bridging a gap left by traditional banking institutions which are typically hesitant to facilitate crypto transactions. Stablecoins also hold the potential to act as global payment methods, particularly in countries with weak currencies and high inflation rates, or even in advanced economies where big tech companies could dominate the financial landscape. Additionally, stablecoins are frequently used for leverage purposes; crypto investors often borrow stablecoins to finance specific positions within the broader crypto asset universe.
“This multifaceted utility highlights the significance of stablecoins and the necessity for their careful regulation as outlined in MiCA, ensuring they contribute positively to the financial ecosystem while mitigating potential risks associated with their use.”
The regulation of collateralised stablecoins therefore constitutes a substantial part of the MiCAR, both in terms of volume and importance, notes Dr Revolidis, pointing out that the entry into force of the provisions pertaining to stablecoins several months prior to the rest of the regulation “is noteworthy, reflecting a sense of urgency and a clear regulatory focus.”
Regarding StablR, Prof. Ellul highlights the way the provider itself is attempting to provide assurances as to its ability to maintain stability through its reserves, even providing a link to its ‘proof-of-reserves: “it is great to see the sector investigating additional means of assurances.”
Notwithstanding the industry’s own efforts at providing peace-of-mind, the MiCAR is “leading the way” in helping to provide guarantees with respect to offerings in the EU market by overseeing some aspects of the operators to provide reasonable assurances to consumers,” continues the Centre for DLT Director, noting that the Centre is launching a two-week intensive course on the topic for anyone interested in learning more about the impact of the sweeping new legislation.
As for Dr Revolidis, he concludes that the proliferation of companies previously authorised under the local Maltese crypto framework now electing to navigate the complexities of operating in accordance with MiCAR’s mandates “stands as a reminder of Malta’s enduring role as a crucible for responsible financial innovation.
“Furthermore, it intimates that the industry at large may be beginning to perceive MiCAR compliance not merely as a regulatory obligation but as a strategic competitive advantage. This notion is likely to crystallise with greater clarity as the forthcoming months unfold,” he says.
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