On April 20, the day that the European Parliament approved a sweeping package of cryptocurrency rules known as MiCA, a new euro-denominated stablecoin was unveiled on the continent. “CoinVertible” seeks to bridge the gap between traditional and digital finance, is available only to institutional investors, and is designed not by hoodie-wearing techies but French banking giant Societe Generale SA.
The sight of regulated banks dabbling in blockchain quickly generated online eye-rolling from crypto bros, who mocked the token’s heavy-handed compliance procedures. CoinVertible’s pitch is to offer legal certainty, collateral transparency and interoperability with TradFi — all in the spirit of MiCA — but only for clients who are approved using SocGen’s existing know-your-customer procedures.
Yet mainstream finance’s creeping encroachment on a market that once dreamed of disruption summarizes the direction of travel for crypto regulation in Europe, which has recently won unlikely praise from crypto characters such as Binance Holdings Ltd.’s CZ, the Winklevoss twins and Coinbase Global Inc. as a “sensible” alternative to the US approach. There, the likes of Gary Gensler at the Securities and Exchange Commission have been more concerned with wielding the hammer of enforcement after scandals from FTX to Silicon Valley Bank than creating new top-down rules.
For all the celebration of Europe’s MiCA — Markets in Crypto-Assets — as validating “the token economy,” appearances can be deceptive: Similar to the way one Meta Platforms Inc. investor described the European Union’s efforts to rein in social media, the new regulations will subject crypto to “being nibbled to death by ducks” — while regulators work out how to bring a hammer to a duck party.
While MiCA offers a specific path to regulatory approval for all sorts of crypto actors — exchanges, custodians, stablecoins, and token sales — its rules and requirements draw inspiration from TradFi. They include capital requirements that ramp up for the biggest tokens, transparent disclosure to fight Ponzi schemes, and increased oversight of service providers that want to set up shop in Europe. Infringements of MICA can cost up to 15% of annual revenue. The EU clearly wants to protect its 450 million consumers and harmonize rules across its 27 member-states.
There’s also a clear desire to protect financial stability and monetary sovereignty after Facebook’s abortive Libra project first alerted the world to a stablecoin market that today is worth about $140 billion. MiCA gives stablecoins specific classifications depending on what they’re backed by — bundles of assets or fiat currency — accompanied by the kind of supervision usually seen at banks and traditional exchanges. The euro zone’s plans to build a digital euro and keep government in the driving seat, as European Central Bank President Christine Lagarde and others have outlined, will brook no competition from crypto’s Wild West.
That means a less profitable, and potentially uneconomic, business model for those accustomed to more freewheeling offshore markets. For example, some “significant” stablecoins that have 10 million average users a year will be supervised by the European Bank Authority and expected to maintain capital of at least 3% of reserves. Throw in the running costs, and one might imagine an operating cost of about 5%, significantly higher than the current burden of doing business — not to mention the explicit possibility that central banks can simply yank any token deemed to be a significant threat to stability.
“These are quite considerable regulatory constraints,” says Francois-Joseph Schichan of consultancy Flint Global “MiCA is not about to usher in a golden age for crypto in Europe.”
If there is a win in all of this red tape for the crypto industry, it’s that, provided all the requirements are met, there is the ability to passport activities from one EU member state to the rest of the bloc. The so-called “Brussels Effect” may also influence global standards beyond the continent.
But the likelihood of re-regulation as time goes on is high. Crypto is an industry prone to sell-offs and scandals, and several areas of crypto have been kept out of MiCA to be regulated at a later date, from DeFi to non-fungible tokens; and MiCA itself won’t be fully applied until 2025. History shows anything is possible when states fear instability: Deutsche Bank AG economist Marion Laboure, in a report on MiCA, cites Roosevelt’s 1933 order banning the hoarding of gold as a possible precedent for what might go wrong for digital currencies and their champions.
So maybe it’s no coincidence that one entity that’s increasingly vocal about taking advantage of new crypto rules in Europe is SocGen, one of the region’s biggest lenders. As governments, central banks and regulators close in on crypto, the co-opting of what was loudly promising to be disruptive is gathering pace.
