Chainalysis analyzes the reason why stablecoins have been chosen as the first tool for MiCA regulation

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Chainalysis explains the reason why stablecoins have been selected as the first target of MiCA regulation.

Why were stablecoins chosen as the first tool for MiCA regulation? The experts at Chainalysis explained it

June 30, 2024 marks an important milestone for crypto assets in the European Union, with the entry into force of the regulation aimed at regulating stablecoins. 

This event represents the first step of the MiCA (Markets in Crypto-Assets), the comprehensive regulatory framework established by the EU for the regulation of cryptocurrencies, which will be implemented in phases, with full compliance required by the end of the year.

The experts at Chainalysis have conducted a detailed analysis to understand why stablecoins were selected as the first target of MiCA regulation. There are several main reasons that explain this strategic choice.

1. Stability of value

Stablecoins, as the name suggests, are designed to maintain a stable value, often pegged to a fiat currency like the US dollar or the euro. This characteristic makes them less volatile compared to other cryptocurrencies like Bitcoin and Ethereum. The stability of value is crucial for daily transactions and makes them an ideal starting point for integration into the traditional financial system.

2. Wide use and adoption

The stablecoin are among the most used and adopted crypto assets in the world of cryptocurrencies. According to data from Chainalysis, in 2023 the overall transaction volume on the blockchain reached 10 trillion dollars, with stablecoin making up 60% of that volume. 

This data highlights the importance and widespread use of stablecoin in the cryptocurrency market, making them a key target for initial regulation.

3. Ease of monitoring

Unlike traditional cryptocurrencies, stablecoins are easier to monitor and trace, thanks to their structure anchored to fiat currencies. This characteristic facilitates the task of regulatory authorities in following the money flows and preventing illicit activities such as money laundering and terrorism financing.

Degree of use of stablecoins: on-chain analysis by Chainalysis, the impact of MiCA regulation

Chainalysis, a leading company in blockchain analysis, has provided detailed data on the use of stablecoins. The on-chain analysis reveals some interesting aspects regarding transaction volume and user behavior.

Transaction volume

In 2023, stablecoins accounted for 60% of the $10 trillion total transaction volume on the blockchain. This data demonstrates the enormous popularity of stablecoins in the cryptocurrency landscape. Their use is widespread among both retail users and financial institutions, highlighting their importance as a transaction tool.

Number of daily transfers

Every day, approximately 1.5 million transfers are sent with stablecoins. This high number of daily transactions highlights the widespread use of these cryptocurrencies for various purposes, including daily payments, international remittances, and commercial exchanges.

Value of transactions

Another interesting data point provided by Chainalysis concerns the value of transactions. 91% of these transactions have a value of less than 10,000 dollars. This suggests that the majority of transaction volume concerns the lower denominations, indicating substantial retail use of stablecoins. Users utilize them to purchase goods and services, transfer small amounts of money, and manage daily expenses.

Implications of stablecoin regulation

The regulation of stablecoin by the EU represents a significant step towards creating a safer and more transparent environment for cryptocurrency users. By establishing clear rules and compliance requirements, the EU aims to protect consumers and ensure the stability of the financial system.

Security and consumer protection

With regulation, users can expect greater protection against fraud and illicit activities. The regulations will require stablecoin providers to implement strict security measures and maintain sufficient reserves to ensure the stability of their coins.

Transparency and trust

The regulation of stablecoins will help improve transparency in the cryptocurrency market. Companies will have to provide clear and accurate information about their operations, increasing the trust of users and investors in the system.

Impact on the cryptocurrency market

The adoption of stablecoin regulation will have a significant impact on the cryptocurrency market. It could stimulate greater adoption by traditional financial institutions, which will see stablecoin as safer and more reliable instruments for transactions.

Conclusions

The entry into force of the regulation on stablecoin on June 30, 2024, represents an important milestone for crypto assets in the EU.

The choice of stablecoin as the first target for regulation is justified by their stability, widespread use, and ease of monitoring.

Chainalysis data reveals a wide use of stablecoin, especially for small-value transactions, highlighting their crucial role in the cryptocurrency landscape.

With the regulation, the EU aims to create a safer and more transparent environment, promoting trust and consumer protection in the bull and bear market of cryptocurrencies.