The United Arab Emirates (UAE) is poised to become a key destination for crypto and stablecoin ventures seeking refuge from the European Union’s (EU) newly implemented Markets in Crypto-Assets (MiCA) regulation.
The regulatory framework, which took full effect on December 30, is creating significant challenges for crypto firms within the 27-member bloc, prompting many to consider relocating, according to industry experts.
The MiCA regulation introduces a pan-European licensing and supervisory regime for crypto-assets, exchanges, and service providers.
MiCA Mandates Stablecoin Issuers to Hold Large Portion of Reserve Rule in EU Banks
Among its stringent requirements, small stablecoin issuers must hold 30% of their reserves in low-risk EU-based commercial banks, while major players like Tether face a mandate to maintain 60% or more in similar institutions.
While aimed at ensuring market stability, these rules are seen as increasing operational costs, potentially undermining the financial viability of many firms.
Uldis Teraudkalns, Chief Revenue Officer at cryptocurrency exchange Paybis, predicts a significant exodus of smaller and even some larger crypto firms from the EU.
“The new regulations will drive companies to look for jurisdictions with more favorable regulatory frameworks,” Teraudkalns told Arabian Business.
“The UAE is emerging as a preferred destination due to its crypto-friendly policies and stable regulatory environment.”
In addition to the UAE, near-EU jurisdictions such as the UK and Switzerland are also expected to attract crypto firms, depending on the evolution of their regulatory landscapes.
Experts noted that the UAE’s proactive positioning as a crypto hub, combined with its clarity on policies, makes it a compelling choice for companies looking to maintain global operations.
MiCA’s impact on stablecoin issuers has been particularly notable. The regulation’s requirement for substantial capital reserves could prove unsustainable for smaller players in the crypto sector.
Agne Linge, head of growth at decentralized finance platform WeFi, highlighted the potential strain on these firms.
“For smaller stablecoin issuers, maintaining 30% reserves in EU banks is financially burdensome,” Linge said.
Larger players like Tether, with a robust market capitalization of $138 billion, may be better positioned but still face significant compliance costs.
Linge also pointed out that Tether’s liquidity primarily originates outside the EU, minimizing its exposure to regional disruptions.
The stablecoin remains legal within the EU for use on peer-to-peer platforms, decentralized exchanges, and custodial wallets.
MiCA to Spark Regional and Global Migration in the Crypto Sector
The MiCA framework is expected to prompt both regional and international migration within the crypto sector.
While some companies may shift operations entirely to crypto-friendly jurisdictions like the UAE, others may explore more progressive regions within the EU itself.
Teraudkalns suggests that this migration could lead to market consolidation, reducing competition and raising barriers to entry.
Access to banking services and regulatory predictability will play pivotal roles in firms’ relocation decisions.
“Companies will consider how to serve their customer base from the UAE while ensuring access to necessary banking and payment methods,” Teraudkalns explained.
Last week, crypto payments platform MoonPay received approval under the MiCA regulation.
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