Why Are Some Crypto Exchanges Ditching Stablecoins

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Some crypto exchanges have announced that they are planning to remove stablecoins from their offer. It's a noticeable decision even though it's still not widely mimicked, and there are only a few exchanges that plan to do it.

Stablecoins are a big part of portfolios for many investors and a big part of the profit for the exchanges that trade them. The news is, therefore, concerning to many, but it is probably due to the changes in regulations that leave the exchanges with little to no other options.

What are Stablecoins?

Stablecoins are financial assets that work similarly to cryptocurrencies, as they are digital assets. However, unlike real cryptocurrencies, stablecoins are not tied to changes in market forces, and their value doesn't fluctuate. Instead, the value of stablecoins is tied to the value of fiat money, which, in most cases, is the US dollar.

That way, stablecoins have started to present a fascinating mix between the digital features of cryptocurrencies and the stability that comes with the work of FED, which keeps the US dollar one of the most stable fiat currencies in the world. Some users, therefore, keep using stablecoins as the best of both worlds, while others don't think of it as a crypto at all.

Removing Stablecoins

Decentralized exchanges (such as the ones found here: https://www.ccn.com/decentralized-exchanges/) have issued a statement that they plan to remove stablecoins from their offer. The biggest one of these is Coinbase. It has announced that it won't sell stablecoins in the EU, starting with the first of January 2025.

"Given our commitment to compliance, we intend to restrict the provision of services to EEA [European Economic Area] users in connection with stablecoins that do not meet the MiCA requirements by December 30, 2024," Coinbase said in a statement.

EU Regulations

The EU has come out with the most comprehensive crypto regulation framework so far, called MiCA. It covers almost every way cryptocurrencies can be used and traded and regulates the rights of all parties involved in crypto trading. As is often the case with the EU, it's a product of complex political and regulation debate.

The provisions related to stablecoins went live in July, and they limit the ability to trade stablecoins unless there is a list of complex demands. Coinbase is the first to give up rather than trying to comply.

Stablecoins Trying to Comply

Stablecoin companies have tried to comply with the EU regulations on their own, and that way, they remain a part of the portfolio for decentralized exchanges. Circle became the first global stablecoin issuer to secure an Electronic Money Institution license. However, Tether, which is the largest stablecoin out there – hasn't.

Tether has issued a statement regarding the problem.

"Tether commends EU regulators for their efforts in establishing a structured framework, as it plays a key role in fostering growth within the sector. However, as we have consistently expressed, some aspects of MiCA make the operation of EU-licensed stablecoins more complex and potentially introduce new risks to both local banking infrastructure and stablecoins themselves."

Future Effects

The initial effect of this decision will be noticed just by those who use Coinbase to trade in the EU. After a while, it will spill over to every crypto exchange since all of them will have to comply with the new regulations set by the EU.

MiCA is also a landmark that other countries and agencies will use to model their regulations on, so there's a chance that similarly restrictive regulations will appear elsewhere and limit the ability to trade stablecoins.

To Sum Up

In conclusion, the decision by some crypto exchanges to remove stablecoins is largely driven by new regulations, like the EU's MiCA framework. While this change may initially impact only certain platforms, like Coinbase in the EU, it's likely to have broader effects as more exchanges adopt similar policies.

Stablecoins, once a popular choice for their stability and connection to fiat currencies, now face new challenges in meeting regulatory requirements. As other countries may follow the EU's lead, the future of stablecoins on exchanges could change significantly in the coming years.