Possible stop for USDT in the EU due to MiCA

Last Friday, ESMA published an official statement according to which starting from February first, crypto exchanges should impose restrictions on USDT for all EU citizens due to MiCA.

According to this statement, starting from the first of April, all services in USDT should be suspended. 

USDT and the MiCA

As highlighted by the official statement of ESMA, the asset-referenced-token (ART) and the e-money token (EMT) are activities regulated by MiCA. 

The MiCA is the crypto regulation of the European Union, and in fact, it has already come into effect. 

In theory, Tether’s USDT should be an e-money token, but Tether is not recognized by the EU as an issuer of e-money (electronic money). Therefore, formally, USDT cannot fall into the category of e-money tokens, since these can only be issued by recognized issuers of electronic money. 

However, if it does not fall into the category of e-money tokens, it can fully qualify as asset-referenced tokens, which are tokens that represent on-chain external assets (in this case USD). 

Therefore, on one hand, the European regulations on e-money tokens should not be applicable to USDT, but on the other hand, those on asset-referenced tokens should be applicable. In other words, the statements of ESMA also apply to USDT. 

The MiCA and the ESMA

All this applies only to the countries of the European Union (EU), since the MiCA is an EU regulation valid only within the European Union. 

For precision, the exchanges will be required to apply it only to users who are residents in EU countries. 

It will be up to the exchanges to ensure that the new MiCA regulations are applied to their users who are residents in the EU, while ESMA can only warn, and then at most monitor. 

L’ESMA (European Securities and Markets Authority) is the EU authority that supervises the markets and financial instruments.

It was established in 2011 and operates only within the countries of the European Union. In theory, it could be considered similar to the U.S. SEC, but in reality, each individual EU country then has its own national financial markets supervisory authority. 

The dichiarazioni dell’ESMA 

The official statements from ESMA on Friday state that the so-called CASP (providers of services related to cryptocurrencies) operating in the EU should promptly take measures to align their services with MiCA.

This means that CASPs should stop making available for trading all cryptos that belong to the ART group, and those that belong to EMT but for which the issuer is not authorized by the EU (EMT non-compliant with MiCA). 

ESMA expects that the restrictions on existing services will be completed by the end of January 2025, but that sales services can be maintained until the end of the first quarter of 2025.

Furthermore, it suggests that CASPs launch communication campaigns aimed at EU investors to inform them of these things, and requests that they implement procedures and initiatives to facilitate the liquidation of these crypto. 

Timing and restrictions

In theory, the MiCA regulations would have already come into force, but the restrictions do not appear to have been applied yet. 

The timelines suggested by ESMA do not seem to be binding, but appear more like estimates or forecasts by the authority. However, they also mean that after the indicated dates, the supervisory authority could start conducting checks to verify that they have been applied. 

The first restrictions concern purchases and all those services that do not involve sales. These restrictions, according to what has been stated by ESMA, are expected to be applied by January 31. 

Therefore, in theory, from the first of February, crypto exchanges should prevent their customers who are residents in the EU from purchasing USDT and using them for any product or instrument that does not foresee their sale. 

Furthermore, starting from the first of April, they should also prohibit its sale. 

It should be remembered that these impositions only concern centralized exchanges, while they do not apply to DEX or non-custodial wallets, also because they are anonymous and do not require the user to declare and prove their residence. 

The soluzioni di USDT per il MiCA

The first possible solution for EU users is to move USDT, and other tokens that will be delisted, to non-custodial wallets. It is recommended to transfer them to non-custodial wallets that allow decentralized swaps, so that you can freely exchange your USDT at any time, for example into USDC (USDC is an EMT compliant with MiCA, so it will not be delisted). 

The second is to wait for the individual exchanges to inform their users about the procedures they offer for the exchange. 

The third is to hope that in the meantime USDT becomes MiCA compliant (but time is running out). It should be noted that Tether is also a partner of some companies that issue MiCA-compliant dollar stablecoins (such as USDQ), therefore it is also possible that Tether itself somehow provides some tool to convert USDT into tokens that will not be delisted in the EU.