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Main Blog Regulation How OKX's stablecoins fiasco hints at what to expect from MiCA

How OKX's stablecoins fiasco hints at what to expect from MiCA

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Authorities around the world are busy shaping the legal framework for the digital asset market. Unfortunately, not everyone manages to introduce laws gracefully and painlessly for the crypto industry. Let's examine the potential consequences using OKX's decision to cut off European clients from the Tether (USDT) stablecoin as an example amid the approaching Markets in Crypto Assets (MiCA) law in the EU.

What happened

On March 18, it became known that since March 14, 2024, the cryptocurrency exchange OKX had deprived European users—residents of the European Economic Area (EU Member States and EEA Member States, excluding Switzerland)—of access to trading pairs with the USDT stablecoin.

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The email from the OKX team to users of the cryptocurrency exchange residing in the European Economic Area

Representatives of the trading platform made the decision ahead of the effective date of the proposed law on the regulation of cryptocurrencies in the European Union (Markets in Crypto Assets, or MiCA).

MiCA is a set of rules European authorities used to form a legal framework for the digital asset market. The directive will partially come into force already this summer, with full adoption planned for December 30, 2024.

Presumably, OKX's decision is related to the MiCA’s inclusion of a provision on mandatory licensing of stablecoin operators. The cryptocurrency exchange does not have such permission. Therefore, its team decided to take preemptive action to avoid watchdogs’ pressure.

As an alternative to the most popular stablecoin, Tether, OKX's team provided European users with USD Coin (USDC)—main USDT’s rival. Learn more about the differences between these two stablecoins in our article.

Implications of OKX's decision

At first glance, it might seem that nothing serious has happened. However, OKX's decision could unleash a tsunami that will engulf the entire crypto market. Let's explore what's wrong with delisting USDT for Europeans.

OKX is a major player in the industry. The cryptocurrency exchange ranks fourth in the spot market and second in the derivatives market. Its services approximately 50 million people worldwide. According to similarweb, OKX’s only rival is Binance.

The exact number of OKX users residing in the European Economic Area is unknown. It can be assumed that there are quite a few: according to triple-a.io, there are 51 million cryptocurrency community participants in Europe. This means that a significant portion of crypto industry representatives use OKX's services.

Now let's focus on Tether—the most popular and highly capitalised stablecoin on the market. USDT even surpasses Bitcoin (BTC) in terms of trading volumes.

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Top-5 cryptocurrencies by trading volume in the last 24 hours. At the time of writing, Tether's trading volume exceeds $76 billion, while Bitcoin's is around $35.9 billion.

Many consider stablecoins as a convenient alternative to traditional highly volatile crypto, with its unpredictable rates that can significantly rise or fall in minutes. Stables are pegged to a certain asset or a basket of assets. For example, each USDT equals $1.

Crypto community members use stablecoins for trading or storing savings during periods of market volatility. Earlier the itez's editorial team published a comprehensive stablecoins explainer.

It turns out that one of the largest cryptocurrency exchanges, fearing the consequences of MiCA's introduction, has cut off its European users from operations with the most capitalised stablecoin, which in terms of trading volume even surpasses Bitcoin. 

Here are the potential consequences of OKX's decision:

  • Other cryptocurrency exchanges may follow OKX's example and refuse USDT. Perhaps the same fate will befall other stablecoins.
  • European cryptocurrency community members, in an attempt to get rid of toxic stablecoins, may sell them off. Seller pressure, as has happened before with Tether, may trigger stablecoin's price depeg from the underlying asset. In this case, the savings of crypto community members in USDT and similar tokens may risk devaluation.
  • The stablecoins depeg may trigger a general digital asset market sell-off, leading to a decline in the prices flash-crash. 

At the time of writing, other exchanges have not followed OKX's example. This means that the market has so far weathered a slight scare. However, as MiCA approaches, trading platforms operating in Europe may follow in the footsteps of their colleagues, triggering a wave of negative consequences for the crypto industry.

In conclusion

A clear regulatory framework for the digital asset market is a boon. Plain rules allow crypto companies to conduct business legally, and crypto community members earn without any dangerous consequences. At the same time, the clumsiness of decisions proposed by watchdogs can harm the industry. Delisting the most capitalised stablecoin by one of the largest cryptocurrency exchanges ahead of the adoption of MiCA is a vivid example of this.

It can be assumed that over time regulators and crypto industry members will find a balance that will allow the digital asset market to develop even within the sharp legal frameworks formed by participants in the traditional financial market.

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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.

Maria Kachura
Maria Kachura

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