With the implementation of the European Union's Markets in Crypto-Assets (MiCA) regulation, cryptocurrency users within the European Economic Area (EEA) seek clarity on several critical matters: the continued viability of USDT usage, the identification of compliant stablecoin options, and necessary preparatory measures for these regulatory changes. This article provides EEA users with comprehensive insights into these key concerns, along with practical adaptation strategies for the evolving regulatory landscape .
1) What is MiCA?
MiCA (Markets in Crypto-Assets Regulation) is the EU's first comprehensive crypto-asset regulatory framework, aimed at bringing clear rules and user protection to Europe's cryptocurrency market. For a detailed analysis of MiCA's regulatory details and industry impact, please refer to ESMA's official MiCA page.
2) USDT's Compliance Challenges and Market Impact
1.Current Status of USDT
As the largest stablecoin in the market, Tether's USDT has drawn significant attention regarding its compliance status in the European Union (EU) market. Currently, the compliance of USDT remains uncertain:Regulatory Status
- USDT has not yet obtained a license as an Electronic Money Institution (EMI) or Credit Institution (CI) in the European Union.
- It has not completed the registration requirements for the Digital Token Identifier (DTI) as mandated by the MiCA (Markets in Crypto-Assets) regulation.
- Tether's reserve management system requires further adjustments to meet MiCA's stricter requirements.
2.Market Response
- Coinbase delisted USDT in December 2024, citing regulatory concerns.
- Kraken has announced it will fully cease USDT trading by March 31, 2025.
- Crypto.com has also declared its intention to delist USDT by the end of Q1 2025.
3.Transition Period Arrangements
According to the European Securities and Markets Authority (ESMA) guidance, trading platforms must implement orderly transition measures:
Key Timeframes
- Q1 2025 as the critical transition period
- Complete major compliance adjustments before March 31
- Buffer period reserved for user asset conversion
Conversion Solutions
- Exchanges will provide automatic conversion options to compliant stablecoins
- Users can choose to convert to compliant alternatives like USDC, EURC
- Some exchanges may offer specific conversion incentive policies
User Response StrategiesFor USDT holders:
- Closely monitor specific delisting schedules of your exchanges
- Evaluate cost-effectiveness of different conversion options
- Consider phased conversion to reduce risks
- Note policy differences between DEXs and CEXs
Alternative Options:
- Evaluate liquidity and use cases of compliant stablecoins
- Consider cross-chain bridge costs
- Monitor conversion rate differences across platforms
Risk Prevention:
- Avoid concentrated selling before deadlines
- Allow sufficient time and budget for conversion
- Consider diversifying holdings across multiple compliant stablecoins
4.DEX Usage Guidelines
While decentralized exchanges (DEXs) are not directly regulated by MiCA, users should note:
- EU users may face legal risks when using non-compliant stablecoins on DEXs
- Fund transfers between DEXs and CEXs may face stricter monitoring
- EU users are advised to choose compliant stablecoins even on DEXs to avoid potential risks
3) MiCA-Compliant Stablecoin List
Compliant stablecoins adhere to the relevant laws, regulations, and standards set by authorities in their respective jurisdictions. Compliance typically involves maintaining transparency, implementing robust Anti-Money Laundering (AML) measures, and ensuring proper Know Your Customer (KYC) procedures. Additionally, compliant stablecoins must be backed by verifiable reserves and undergo regular audits, fostering trust within the market.
Under MiCA regulations, the stablecoin market is undergoing a compliance revolution. As the first decentralized identity verification infrastructure compliant with FATF standards, zkMe is providing crucial support for this transformation.
By combining zero-knowledge proof technology with identity verification, zkMe's zkKYC solution perfectly resolves the contradiction between decentralization and compliance. For stablecoin issuers, this means they can meet strict regulatory requirements while ensuring users maintain complete data autonomy. Notably, zkMe's three-tier verification architecture provides flexible compliance solutions for different types of stablecoin projects, supporting everything from basic personal identity verification (zkPoP) to complete KYC/AML checks and location-specific verification (zkPoL).
Examples of stablecoins aligning with MiCA’s requirements include:
- EURI: Issued by Banking Circle, this stablecoin is registered as a CI in Luxembourg, with DTI LGPZM7PJ9, supporting Ethereum and BNB Smart Chain.
- EURe: Monerium’s stablecoin, registered as an EMI under the Central Bank of Iceland, with DTIs on Ethereum, Polygon and Gnosis.
- USDC & EURC: Issued by Circle Internet Financial Europe SAS (Circle SAS) and registered as e-money tokens. Notably, white papers of both stablecoins lacked information regarding DTIs as of Dec. 26.
- EURCV: SG Forge’s CoinVertible is registered as an EMI in France with DTI 9W5C49FJV, implemented on Ethereum.
- EURD: Quantoz Payments’ EURD is registered as an EMI in the Netherlands with DTI 3R9LGFRFP, built on Algorand.
- EUROe and eUSD: Membrane Finance Oy’s stablecoins, registered as EMIs in Finland, with multiple DTIs across Concordium, Solana, Arbitrum, Avalanche, Ethereum, Optimism and Polygon.
- EURQ and USDQ: Launched by Quantoz Payments with support from Tether, Kraken, and Fabric Ventures, these stablecoins are fully backed by fiat reserves and licensed by the Dutch Central Bank (DNB) as e-money tokens.
- EURØP: A euro-backed stablecoin by Schuman Financial, fully backed by cash and cash equivalents, to be available on Ethereum and Polygon, with plans to expand to all major European centralized crypto exchanges. EURØP’s MiCA compliance was secured through Schuman Financial’s subsidiary, Salvus SAS, which obtained an e-money token license from the French Prudential Supervision and Resolution Authority. It will be restricted in 107 high-risk jurisdictions, including Iran, North Korea, Venezuela, Russia, Turkey, El Salvador, South Africa and the UAE.
Geographical Restriction Reminder
Certain compliant stablecoins may be restricted in specific regions. Users should take note of the following:
- Verify whether your region is on the restricted list.
- Ensure the chosen stablecoin is available for use in your jurisdiction.
- Stay informed about the specific regulatory requirements in different jurisdictions.
4) Market Participant Response Strategies
1.Institutional User Guidelines
Compliance Timeline Management
- Evaluate current stablecoin portfolio structure
- Develop phased conversion plans
- Monitor specific implementation timelines across exchanges
Risk Control Measures
- Establish diversified stablecoin reserves
- Assess liquidity conditions of different compliant stablecoins
- Develop contingency conversion plans
2.Retail User Guidelines
Asset Allocation Adjustment
- Understand compliance status of held stablecoins
- Evaluate conversion costs and timing
- Select suitable compliant alternatives
Trading Strategy Updates
- Monitor liquidity changes
- Adapt to new trading pair combinations
- Consider price impact during conversion process
5) MiCA Implementation Timeline
MiCA follows a clear phased implementation process:
1.Entry into force of MiCA: June 2023
- Entities providing crypto-asset services under applicable national law may continue to do so during the implementation phase
2.Deadline for grandfathering: June 2024
- Member States must notify the Commission and ESMA by 30 June 2024 if they intend to opt-out of the grandfathering in Art. 143(3) or reduce the duration
3.Entry into application: December 2024
- Transitional measures (e.g. grandfathering and simplified procedure) apply in those Member States who opted in
- Entities in participating Member States may apply for the simplified authorisation procedure under Art. 143(6) until 1 July 2026
4.End of transitional phase: July 2026
- Entities benefiting from the transitional measures must acquire authorisation in accordance with Art. 63 of MiCA by 1 July 2026 to continue providing crypto-asset services
The implementation is divided into two main phases:
- Implementation phase: 18 months (June 2023 - December 2024)
- Transitional phase: 18 months (December 2024 - July 2026)
6) Scope of Application
MiCA’s regulatory framework applies across the entire European Economic Area (EEA), encompassing 30 member states:
Key Impacted Regions
- EU Member States: Austria, Cyprus, Czech Republic, Malta, Portugal, Spain, Sweden, among others.
- Other EEA Members: Norway, Iceland, Liechtenstein.
- Special Territories: Overseas territories and special administrative regions are also subject to MiCA’s provisions.
Users should note that any cryptocurrency transactions conducted within these regions must comply with MiCA regulations, regardless of the location of the trading platform.
7) Understanding the MiCA Regulatory Framework
MiCA's core objective is to strike a balance between fostering innovation and ensuring market stability and user protection. This equilibrium is reflected in its classification-based regulatory approach to stablecoins:
1.New Classification System for Stablecoins
- Asset-Referenced Tokens (ARTs)
- Backed by a combination of multiple assets.
- Require a more comprehensive risk management framework.
- Suitable for complex financial applications.
- Electronic Money Tokens (EMTs)
- Pegged to a single fiat currency.
- Mandate 100% reserve backing.
- Primarily designed for payments and value storage.
2.Innovative Compliance Solutions
Under MiCA's strict requirements, the market urgently needs solutions that satisfy compliance requirements while maintaining decentralization principles. As a leading identity verification infrastructure, zkMe perfectly addresses this challenge through its innovative zero-knowledge proof technology. According to zkMe's design philosophy, personal data is only processed by users themselves, ensuring maximum privacy protection while eliminating data breach risks common in traditional KYC solutions. Additionally, through its multi-chain deployment capabilities, zkMe provides true cross-chain identity solutions for stablecoin projects, supporting multiple mainstream blockchain ecosystems including Ethereum, Polygon, Base, and others.
8) Detailed Analysis of the Algorithmic Stablecoin Ban
MiCA explicitly prohibits the operation of algorithmic stablecoins based on the following considerations:Systemic Risk Prevention
- Algorithmic stablecoins lack physical asset backing
- Rely entirely on market mechanisms and algorithms for stability
- Susceptible to spiral collapse under extreme market conditions
Historical Lessons
- The Terra/LUNA collapse had far-reaching impacts
- Pure algorithmic models proved unstable under market pressure
- Lack of effective value support mechanisms
Market Impact
- Existing algorithmic stablecoin projects must transform or exit the EU market
- Drives stablecoin transition toward physical asset-backed models
- Promotes market evolution toward more robust models
This ban reflects regulators' prudent approach to stablecoin risk management, aiming to build a more reliable digital asset market.
9) Key Changes During the 2025 Market
1.Adaptation Period
Compliance Transformation of Exchanges
Major cryptocurrency exchanges have initiated phased compliance plans. Kraken, for instance, illustrates a gradual adaptation process:
- Phase 1 (February 2025): Restriction of margin trading.
- Phase 2 (End of February 2025): Transition to a sell-only mode.
- Final Phase (End of March 2025): Complete termination of non-compliant stablecoin trading.
2.New Ecosystem of Compliant Stablecoins
A new ecosystem of compliant stablecoins is emerging, fostering a more regulated market environment. Some representative projects include:
- EURI (Banking Circle): Backed by a robust banking infrastructure.
- USDC/EURC (Circle): A compliant solution with an electronic money license.
- EURe (Monerium): A stablecoin solution based on traditional financial infrastructure.
10) Market Outlook
The implementation of MiCA marks a new development phase in the cryptocurrency market. While this transformation may incur some adjustment costs in the short term, it will bring the following positive long-term impacts:
Market Structure Optimization
- Clearer price discovery mechanisms
- More stable liquidity environment
- More standardized market order
Increased Institutional Participation
- Reduced compliance risks
- Enhanced market trust
- Increased traditional financial institution participation
Clear Innovation Direction
- Encouragement of compliant innovation
- Promotion of technological upgrades
- Advancement of cross-border payment development
Conclusion
The implementation of MiCA's stablecoin regulatory framework is a significant milestone in the maturation of the cryptocurrency market. While this process requires substantial adjustment costs from market participants, it will ultimately create a more sustainable development environment for the entire industry.During this transition, zkMe, as the world's first fully decentralized FATF-compliant identity verification infrastructure provider, is offering critical compliance support for on-chain projects through its innovative zero-knowledge proof technology.For market participants, proactively adapting to these changes and preparing in advance will be key to achieving success in the new regulatory landscape.
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About zkMe
zkMe builds zk Identity Oracles for truly decentralized & anonymous cross-chain credential verifications.No personal information is ever processed by anyone but the user themselves. Data leaks & misuse by the service provider are impossible; full interoperability & reusability result in a superior ID solution.
zkMe’s is the only FATF compliant KYC provider to be fully decentralized, offering a full suite of products from anti-bit/anti-sybil, to KYC and more.
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