What’s Next After MiCA Regulations?

The introduction of MiCA regulations in 2024 marks a significant shift in the financial landscape. 

These regulations aim to exert control, ruling out stablecoins that are not fully-backed by fiat currency. 

While this seems fair, it's worth noting the irony: banks have long been allowed to lend fiat into existence with minimal backing — representing a clear double standard.

This article is part of the Chain Reactions series: expert opinions on everything blockchain and crypto.

What is MiCA Regulation?

The Markets in Crypto-Assets (MiCA) regulation is a legal framework introduced by the European Union to regulate the cryptocurrency industry. MiCA aims to create a standardized approach to crypto assets across EU member states, ensuring better investor protection, market integrity, and financial stability.

One of the main focuses of MiCA is regulating stablecoins, particularly ensuring they are fully backed by fiat currency reserves. It also imposes stricter rules on crypto businesses regarding transparency, reporting, and capital requirements.

The Truth About MiCA Regulation

In my view, all lending should be backed by more collateral than the amount loaned. 

This principle has been undermined since Nixon decoupled the US dollar from the gold standard, leaving the dollar backed not by gold but by military might.

So, why are stablecoins seen as such a threat? 

Primarily, it’s about the potential loss of control over their issuance, similar to the US's concerns about the Eurodollar.

Unfortunately, fully-backed stablecoins like LUSD and USDL are now mired in confusion due to MiCA’s lack of clarity. 

While the regulations specifically target algorithmic stablecoins and impose stringent reporting requirements for capital adequacy, most banks operate with significantly lower reserves, often as little as 10%.

While many praise the new MiCA rules, I believe they inadequately represent the stablecoin space and primarily serve to protect banks' dominance in global currency transactions.

After all, it's a market worth approximately $10 trillion USD.

We need to consider over-collateralized stablecoins like LUSD and USDL, which ensure they are backed by more assets than the stablecoins issued. 

This is a fundamental aspect of how Liquid Loans and Liquity operate.

By excluding algorithmic stablecoins due to their perceived potential risks, regulators seem to overlook the greater risks posed by the under-collateralized fiat system. 

Overall, this move appears to be another attempt by regulators to maintain control over stablecoin issuers.