From 30 June 2024, Crypto-Asset Service Providers (CASPs) in Europe will be required to withdraw from the market those crypto-assets that do not comply with the requirements set out by the new Markets in Crypto-Assets Regulation (MiCAR).
This regulation, designed to harmonize the legal framework for cryptocurrencies in the European Union, has a direct impact on stablecoins, including Tether (USDT), the most widely used stablecoin in the world.
The case of Tether is particularly relevant, as its potential exit from the European market due to the aforementioned regulation raises questions about the liquidity, stability, and structure of the crypto ecosystem in the region. In this article, we will explore how the MiCAR regulation involving Tether’s exit shows new alternatives that could emerge and challenges legal and technological issues.
Tether (USDT): the rising backbone of stable coins
Tether (USDT) is a stablecoin, a type of cryptocurrency designed to maintain a stable value by being backed by traditional assets, such as fiat currencies (e.g., the U.S. dollar) or commodities (Treasury Bonds of USA). Launched in 2014, Tether has become the stablecoin with the highest market volume, surpassing $130 billion in circulation in 2024. Its popularity is due to its wide adoption on exchanges and its use as a bridge between the traditional and crypto worlds, avoiding the volatility of other crypto tokens.
Tether has been surrounded by legal and regulatory controversies. In the year 2021, the company behind USDT, Tether ltd settled with the New York State Attorney General’s Office for $18.5 million due to allegations of hiding losses and issuing tokens without proper backing.
The MiCAR regulation: A new framework for cryptocurrencies in Europe
The Markets in Crypto-Assets Regulation, approved in 2023, is the first comprehensive regulatory framework for cryptocurrencies in the European Union. Its objective is to protect consumers, ensure financial stability and prevent illicit activities, such as money laundering and terrorist financing.
Among its most important provisions, MiCAR sets strict requirements for stablecoins, especially those considered to be “significant reference assets”. These stablecoins must meet rigorous standards regarding: 1. Backing: Stablecoins must be fully backed in Europe by high-quality, liquid reserves. 2. Transparency: Issuers must publish periodic reports on their reserves and ensure the external audit of their assets. 3. Licensing and supervision: Stablecoin issuers must obtain a license and be subject to the supervision of the European financial authorities.
For Tether, complying with these requirements represents a significant challenge and in fact it has been raised by the company that they will not proceed to adapt to MiCAR’s demands.
Crypto-Asset Service Providers: Regulating the Gatekeepers of the Digital Assets Economy
CASPs are entities or companies that offer services related to cryptocurrencies and other digital assets within the European Union. These services include, but are not limited to, custody of crypto assets, operation of exchanges, execution of buy and sell orders, and management of cryptocurrency portfolios. CASPs are key players in the crypto ecosystem, as they facilitate users’ access to digital markets and allow the purchase, sale, and storage of assets such as Bitcoin, Ethereum, or stablecoins.
In Europe, CASPs are subject to the Markets in Crypto-Assets Regulation, which establishes a uniform legal framework to ensure transparency, security, and consumer protection. This regulation requires CASPs to obtain a license to operate and comply with strict requirements, such as the implementation of anti-money laundering (AML) and counter-terrorist financing (CFT) measures, as well as the publication of clear and accurate information on the risks associated with cryptoassets, and in the case of exchanges, not to list cryptoassets that do not comply with the regulation.
The regulation of CASPs under MiCAR seeks to balance technological innovation with financial stability and user protection. By establishing clear rules, the European Union hopes to foster confidence in the crypto market and attract investments, while preventing illicit activities.
Considerations on the impact of Tether’s exit on Europe
Tether’s exclusion from the European market will have profound consequences on the region’s crypto ecosystem. Some of the most relevant effects that will occur may include:
Reconfiguration of the stablecoin market:
USDT has been the dominant stablecoin in crypto trading, accounting for more than 50% of total transaction volume on many platforms. Its exit will force European users to migrate to regulated alternatives, such as euro-backed stablecoins, which are currently underdeveloped, or those that comply with MiCAR, such as USD Coin (USDC), from the company CIRCLE . This could lead to increased competition among stablecoin issuers and, potentially, increased innovation in the sector.
Redistribution of liquidity:
Tether is a key player in the global liquidity of the crypto market. Its exclusion from Europe could lead to a redistribution of liquidity to other jurisdictions, such as the United States or Asia, where regulations are less restrictive. This could weaken Europe’s position as a financial hub for crypto assets.
Challenges for exchanges:
European exchange companies face a dilemma. Removing USDT from their platforms could reduce their trading volume and affect their profitability but maintaining it would expose them to regulatory penalties. So far, no major exchange has proceeded to delist USDT, but it is only a matter of time before they need to adjust their strategies.
Emerging legal and technological issues
USDT’s exit from Europe also raises legal and technological issues that need to be addressed.
Consumer protection should be contemplated. MiCAR seeks to protect crypto users, but forced migration to other stablecoins could lead to confusion and risks, especially for non-expert users. Likewise, the exclusion of USDT could generate volatility in the European crypto market, at least in the short term due to the financial instability that may occur.
Finally, stablecoin issuers and CASPs will need to invest in technology and processes to comply with MiCAR, which could increase their operating costs, generally resulting in transactional increases for users.
A before and after in the European crypto market
The exit of Tether (USDT) from Europe marks a turning point in the history of the region’s crypto market. The implementation of MiCAR reflects the European Union’s commitment to technological innovation, but also to the legal and financial protection of users, although regulation appears to be excessive in the case of Tether. It remains to be seen how the European crypto ecosystem will adapt to this new scenario. What is certain is that the delisting of USDT will lead to a reconfiguration of the market, with new opportunities and challenges for the players involved.
In the coming months, it will be crucial to observe how exchange companies, stablecoin issuers and regulators work together to ensure an orderly and secure transition, and finally to check whether the MiCAR regulation has been a concrete standard for the spread of the crypto market or if it ultimately constitutes a “corset” that prevents innovation.
Suggested citation:
Alejandro Gonzalez Rossi, ‘The end (for now) of Tether in Europe: Assessing the impact of the Markets in Crypto-Assets Regulation’ (Comparative Digital Law Blog, 19 February 2025) <https://lawandtech.ie/the-end-for-now-of-tether-in-europe-assessing-the-impact-of-the-markets-in-crypto-assets-regulation/>.
Alejandro Gonzalez Rossi is a Lawyer and Full Stack Developer. He is the Director of the postgraduate programs “Blockchain and Artificial Intelligence in Business Law” and “Work and Technology” at Austral University, Argentina. He has authored numerous papers in his field of expertise.
