Lugh Halts Stablecoin Issuance Ahead of MiCA Implementation

The European firm Lugh has announced the cessation of its stablecoin EURL issuance in anticipation of the MiCA regulation coming into effect. 

? Annonce :

MiCA : Lugh suspend son activité d’émission de stablecoin pic.twitter.com/RdXzJHBzY5

— Lugh (@LughStablecoin) June 4, 2024

The issuer has guaranteed the redemption of existing coins until August 30, 2024.

Reimbursement can be obtained on the Lugh website.

“All EURL have been and will be guaranteed 1:1 by our reserve account, opened at Société Générale and audited monthly by Deloitte,” the company noted.

According to Defi Llama, the circulation of euro-pegged EURL tokens has dropped from approximately $2.8 million in March to $31,940 at the time of writing. 

Lugh’s statement follows Binance’s announcement of restrictions on the availability of “unregulated stablecoins” within the European Economic Area (EEA).

From June 30, European clients of the platform will have access to convert such coins in a “sell-only” mode, with purchases closing on the same date. The restrictions will also affect copy trading services, participation in Launchpad, Launchpool, Simple Earn, and several other services. 

Binance did not mention the largest stablecoin by circulation, USDT, in its statement, but the potential impact of MiCA on it remains unclear. 

Tether CEO Paolo Ardoino told The Block that the new European regulation “contains several problematic requirements.”

“They may not only complicate the work of issuers but also make EU-licensed stablecoins extremely vulnerable and riskier to operate,” he noted.

Ardoino emphasized the importance of consultations on regulatory technical standards with market players who need clear rules.

In April, Tether’s CEO reported that the company is still discussing potential risks for stablecoins with the regulator in connection with MiCA. At that time, he called storing reserves in uninsured cash deposits instead of treasury bills “not a very good idea.”

According to a report published in May, the vast majority of approximately 110 billion USDT in circulation at the end of the first quarter of 2024 was backed by U.S. Treasury bonds.

Earlier, it was reported that Kraken is “actively considering” the status of USDT under the new EU regulatory rules. However, exchange representatives stated there are no plans to delist the stablecoin.

In March, journalists wrote about OKX’s intention to remove USDT trading pairs for EEA clients.

The provisions of MiCA affecting “stablecoins” come into force on June 30, 2024. Their operators are required to obtain a license from a competent authority of an EU member state and comply with requirements to ensure the stability of their tokens.

Companies will have to ensure full disclosure of information to clients, present a public business model, establish an effective management system, including risk management, as well as register with the EBA, create a redemption mechanism, and have sufficient reserves.