Forwarding the original title “Web3 Lawyers’ In-Depth Interpretation: A Detailed Explanation of the Stablecoin Regulatory Frameworks in the EU, UAE, and Singapore”

In previous articles, the Crypto Salad team provided a detailed introduction to the stablecoin regulatory frameworks in the United States and Hong Kong from multiple perspectives. In addition to the United States and Hong Kong, many other countries or regions around the world have also established relatively complete stablecoin regulatory frameworks.

In this article, the Crypto Salad team has selected three of the most representative and internationally influential countries or regions — the European Union, the United Arab Emirates, and Singapore. Using the same analytical framework and thinking logic, combined with the Crypto Salad team’s blockchain project experience, we will outline the regulatory frameworks for stablecoins in each of these three.

This article analyzes the regulatory framework for stablecoins from the following perspectives: regulatory process, normative documents, regulatory agencies, and the core content of the regulatory framework. The specific content framework is as follows:

Catalog

(1) European Union

1. Regulatory processes and normative documents

2. Corresponding regulatory authorities

3. Key contents of the regulatory framework

a. Definition of stablecoin

b. The access threshold for the issuer

c. Stability mechanism of the coin value and maintenance of reserve assets

d. Compliance requirements in the circulation link

e. Special regulatory rules for important ART

(2) United Arab Emirates

1. Regulatory processes and normative documents

2. Corresponding regulatory authorities

3. Main content of the regulatory framework

a. Definition of stablecoin

b. The access threshold for issuers

c. The mechanism for maintaining the stability of the coin value and reserve assets

d. Compliance requirements in the circulation stage

(3) Singapore

1. Regulatory processes and normative documents

2. Corresponding regulatory authorities

3. Main content of the regulatory framework

a. Definition of stablecoin

b. Issuer’s access threshold

c. The mechanism for stabilizing the value of the coin and the maintenance of reserve assets.

d. Compliance requirements in the circulation link

(The above image is a comparative diagram of the stablecoin regulatory frameworks of the EU, UAE, and Singapore, for reference only)

1. European Union

1. Regulatory processes and normative documents

The European Union officially released the core regulatory document “Markets in Crypto-Assets Regulation” (hereinafter referred to as the “MiCA Regulation”) in June 2023. The “MiCA Regulation” aims to establish a unified regulatory framework for crypto assets, addressing issues such as regulatory fragmentation among member states.

The relevant rules regarding the issuance of stablecoins in the MiCA Act officially came into effect on June 30, 2024, and all companies subject to these rules must now fully comply with the relevant regulations.

2. Corresponding regulatory authorities

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) are responsible for establishing the regulatory framework and supervising significant stablecoin issuers and related service providers.

The regulatory authority of the member state where the stablecoin issuer is located also has some regulatory power over the stablecoin issuer.

3. Regulatory Framework and Main Content

a. Definition of stablecoin

Article 18 of the MiCA Regulation classifies stablecoins into two categories, namely

I. Electronic Money Tokens (EMT)

EMT refers to a type of crypto asset that stabilizes its value by referencing only one official currency. The MiCA Regulation explicitly states that the functions of EMT are very similar to those defined for electronic money in Directive 2009/110/EC. Like electronic money, EMT is essentially an electronic substitute for traditional fiat currency, which can be used for payments and other everyday scenarios.

II. Asset-Referenced Tokens (ART)

ART refers to a type of cryptocurrency that stabilizes its value by referencing a combination of one or more official currencies.

The difference between EMT and ART lies not only in the types and quantities of the official currencies referenced. Article 19 of the MiCA Regulation provides a detailed explanation of the differences between the two.

According to the relevant definitions in Directive 2009/110/EC, holders of electronic money tokens, or EMTs, always have a creditor’s claim against the issuer of the electronic money and possess the contractual right to redeem the monetary value of the electronic money held at face value at any time. This means that the redemption capability of EMTs is absolutely guaranteed by statutory claims.

In comparison, ART does not necessarily grant its holders a claim against the issuers of such crypto assets and therefore may not fall under the jurisdiction of Directive 2009/110/EC. Some ARTs do not grant their holders a claim to the face value of the reference currency or impose restrictions on the redemption period. If ART holders do not have a claim against their issuer, or if their claim does not match the face value of the reference currency, the holders’ confidence in the stability may be shaken.

The following analyses concerning the regulatory aspects will be conducted from the perspectives of ART and EMT.

Regarding algorithmic stablecoins, the MiCA legislation does not include algorithmic stablecoins in the regulatory framework for stablecoins. Since algorithmic stablecoins do not have a clear reserve tied to any real asset, they do not fall under the categories of EMT or ART as defined in the MiCA legislation.

From a regulatory perspective, this actually means that algorithmic stablecoins are prohibited under the MiCA legislation. The position of the MiCA legislation regarding algorithmic stablecoins is very similar to the policy directions in the United States, Hong Kong, and other regions. This also indicates that regulatory authorities in various countries maintain a cautious attitude towards algorithmic stablecoins that lack real asset reserves.

Analysis of the relevant regulations on ART in the MiCA Act

b. The access threshold for the issuer

According to the relevant provisions of Article 16 of the MiCA Regulation, there are two types of issuers of ART:

• The first type is a legal person or other enterprise established in the European Union that has obtained authorization from the competent authorities of its member states in accordance with Article 21 of the MiCA Act. If a business wishes to apply for authorization from the relevant authorities in advance, the application should include: issuer address, legal entity identifier, articles of association, business model, legal opinions, and other relevant information and documents.
• The second type is a credit institution that meets Article 17 of the MiCA Regulation. Article 17 of the MiCA Regulation clearly states that the credit institution needs to provide various relevant documents to the authorities within 90 days: operational plans, legal opinions, token governance arrangements, etc.

However, MiCA also supplements the provisions regarding exemptions for issuer qualifications. When the issuer meets any of the following circumstances, they can be exempted from the aforementioned qualification requirements for ART issuers.

I. The average circulating value of the ART issued has never exceeded 5,000,000 euros or other equivalent official currencies within one year;

II. The ART is issued only to qualified investors and circulated only among qualified investors;

Although the MiCA regulation exempts the qualification requirements for the above two types of ART issuers, it does not mean that there is no regulation at all. In fact, the ART issuer still needs to draft a crypto asset white paper in accordance with the relevant provisions of Article 19 of the MiCA and notify the competent authorities of its home member state to complete the filing.

(The above image is the original text of Article 16.2 of the MiCA Regulation)

In addition, MiCA imposes stricter regulations on ART with an average circulation value exceeding 100,000,000 euros, and its issuers will bear additional reporting obligations, requiring them to report the following information to the competent authorities on a quarterly basis:

The number of holders, the value of the issued ART, the scale of asset reserves, the average daily trading volume of ART and the average transaction amount for that quarter, and other information.

Finally, the “MiCA Regulation” also clarifies the own funds requirements for all ART issuers. The own funds that ART issuers should always have must be greater than or equal to the highest value of the following three standards:

I.350,000 euros;

II. 2% of the average amount of reserve assets mentioned in Article 36;

III. One quarter of the fixed management expenses from the previous year.

In summary, the MiCA regulation adopts a relatively flexible “layered regulatory” model for ART token issuers.

Issuers of ART that have an average circulating value not exceeding 5,000,000 euros, or that are issued and circulated only to qualified investors, may be exempt from the requirements for issuer qualifications, but must still draft a white paper for the crypto asset and notify the competent authority.

Issuers of ART with an average circulating value between 5,000,000 euros and 100,000,000 euros must meet the qualification requirements for ART issuers under the MiCA Regulation, complete the corresponding authorization application, and submit the relevant materials.

For ART issuers whose average circulating value exceeds 100,000,000 euros, they are required to fulfill additional reporting obligations while meeting the issuer qualification requirements.

All ART issuers, regardless of the average circulation value of their tokens and the issuing group, need to have at least sufficient own funds.

(The issuer qualification requirements corresponding to different ART in the above figure)

c. Stablecoin value stabilization mechanism and maintenance of reserve assets

First of all, Article 36 of the MiCA Regulation clearly states that ART issuers must always maintain reserve assets, and the reserves and management of these assets must meet the following core conditions:

I. Able to cover risks associated with assets linked to ART.

II. And it can address the liquidity risks associated with the holders’ permanent redemption rights.

In other words, the reserve assets of the ART issuer need to avoid and cover the endogenous risks caused by the reserve assets themselves, while also being able to cope with the external redemption risks caused by token holders.

However, the MiCA Regulation does not provide clear regulatory standards regarding the amount and types of reserve assets for ART issuers, but instead designates the European Banking Authority to oversee the development of relevant technical standards drafts, further clarifying reserve asset and liquidity requirements.

(The above image is the original text of Article 36 of the MiCA Regulation)

Secondly, the ART issuer should ensure that the reserve assets are completely separated from the issuer’s own assets and that the reserve assets are independently custodial by a third party.

Finally, the ART issuer can use part of the reserve assets for investment, but the investment must meet the following conditions:

I. The investment target is high liquidity financial instruments with minimal market risk, credit risk, and concentration risk;

II. The investment should be easily liquidated and have minimal adverse impact on the price at the time of exit.

In short, reserve assets can only be used to invest in compliant financial instruments that have extremely low risk and extremely high liquidity, thereby minimizing the risks faced by reserve assets as much as possible.

d. Compliance in the circulation segment

First, Article 39 of the MiCA Regulation clearly stipulates that ART holders shall have the right to initiate redemption from the issuer of ART at any time. Furthermore, ART should be redeemed at the market price of the reference asset upon the holder’s request. At the same time, the issuer of ART should formulate corresponding policy rules regarding the holder’s permanent right of redemption, specifying the specific conditions for exercising the right of redemption and the underlying mechanism for token redemption.

Secondly, the MiCA Regulation also imposes restrictions on the maximum circulation of ART. If the quarterly trading volume and the daily average total trading value of a certain ART exceed 1 million transactions and 200,000,000 euros respectively, the issuer must immediately cease further issuance of that ART token and submit a plan to the competent authority within 40 working days to ensure that the trading volume and trading value of the token are below the aforementioned standards.

This also means that the MiCA legislation sets a hard upper limit on the circulation of ART tokens, establishing a ceiling that ART cannot exceed under any circumstances. This rule is also designed to mitigate the potential internal liquidity risks that could arise from an excessive circulation of ART.

e. Special regulatory rules for important ART

Significant Asset-Referenced Tokens (ART) refer to ART that meets specific criteria, with a total of seven criteria for assessment.

The first three standards are related to the circulation and market value of ART itself:

I. The number of holders of this ART is greater than 10,000,000;

II. The market capitalization or reserve asset scale of the ART is higher than 5,000,000,000 euros;

III. The average daily trading volume and average daily trading value of this ART are both above 2.5 million transactions and 500,000,000 euros;

The last four standards are related to certain characteristics of ART issuers:

IV. The ART issuer is designated as a core platform service provider that acts as a Gatekeeper according to Regulation (EU) 2022/1925 of the European Parliament and of the Council;

V. The activities of the ART issuer have international significance, including the use of asset-referenced tokens for payments and remittances;

VI. The interconnectedness of the ART issuer and the financial system

VII. The ART issuer has also issued other ARTs, EMTs, or provided at least one Crypto-Asset Service.

When a certain ART meets three of the seven criteria mentioned above, the European Banking Authority should classify the ART as significant ART. The regulatory responsibility of the ART issuer should be transferred from the competent authority of the member state where the issuer is located to the European Banking Authority within 20 working days from the date of notification of the decision, and subsequent supervision should be carried out by the European Banking Authority.

The reason for distinguishing the concept of important ART is that Article 45 of the MiCA Regulation clearly states that important ART issuers are required to bear additional obligations, including but not limited to:

I. Important ART issuers should adopt and implement remuneration policies that promote effective risk management.

II. The issuer of significant ART should assess and monitor the liquidity demand for tokens to meet the requirements of its holders to redeem asset reference tokens. To this end, the issuer of significant asset reference tokens should establish, maintain, and implement liquidity management policies and procedures.

III. Important ART issuers should regularly conduct liquidity stress tests on the tokens. The regulatory authority, the European Banking Authority, will also dynamically adjust the liquidity requirements for the ART based on the results of the liquidity stress tests.

Analysis of the relevant regulations regarding EMT in the MiCA Act

EMT (Electronic Money Tokens) has stricter issuer access thresholds and qualification requirements compared to ART. Only certified Electronic Money Institutions (EMI) or credit institutions can legally issue EMT under the MiCA regulation. Additionally, EMT issuers are also required to draft a cryptocurrency asset white paper and notify the competent authorities regarding this white paper.

In addition, the regulatory requirements of the MiCA Act regarding the maintenance and management of reserve assets for EMT issuers are quite similar to the relevant specifications for ART issuers, with many overlaps, which will not be analyzed here.

2. United Arab Emirates

1. Regulatory Process
In June 2024, the Central Bank of the UAE issued the Payment Token Services Regulation, which clarified the definition and regulatory framework for “payment tokens” (stablecoins).

2. Regulatory Document
The core regulatory document is the “Payment Token Services Regulation” mentioned above.

3. Regulatory authorities
The United Arab Emirates is a federal state composed of seven autonomous emirates. Notable emirates include Dubai, Abu Dhabi, and so on. Therefore, the regulatory framework for stablecoins in the UAE also features a “federal - emirate” dual-track parallel characteristic.

The Central Bank of the UAE has issued the “Regulations on Payment Token Services” and is directly responsible for supervising the issuance of stablecoin activities at the federal level. However, the jurisdiction of the Central Bank of the UAE does not include the two financial free zones of the UAE: DIFC (Dubai International Financial Centre) and ADGM (Abu Dhabi Global Market).

Both have independent legal regulatory systems and corresponding regulatory agencies, thus they are not directly governed by the Central Bank of the UAE.

This “federal - UAE” dual-track parallel regulatory system ensures unified regulation of stablecoin issuance at the federal level, thereby ensuring the sound development of the stablecoin industry, while also leaving room for institutional innovation and exploration in the financial free zone. As a federal country, compared to the chaotic and disordered regulatory system for crypto assets in the United States — with the SEC, CFTC, and Fed taking turns and creating jurisdictional confusion, the dual-track regulatory system in the UAE is clearly more clear and efficient.

4. Core content of the regulatory framework

a. Definition of stablecoin

The “Payment Token Service Regulation” (hereinafter referred to as “this regulation”) does not use the concept of “stablecoin,” but rather the term “Payment Token.” For the sake of consistency throughout this document, it will also be referred to as “stablecoin.”

The regulation also clearly defines the concept of stablecoin in Article 1:

A virtual asset designed to maintain a stable value by referencing the value of a fiat currency or another stablecoin denominated in the same currency.

(The above image is Article 1.51 of the “Payment Token Service Regulations”)

It can be seen that compared to the EU’s MiCA Regulation and Hong Kong’s stablecoin regulations, the definition of stablecoin in this regulation is relatively broad.

In addition, this regulation also clarifies in Article 4 which tokens do not fall under the category of stablecoins regulated by this regulation.

1. Token type exemptions: Tokens used for reward programs, or points-based tokens that circulate only within a specific ecosystem, such as tokens issued in supermarket membership point incentive programs, are not subject to these regulations.

2. Exemption based on token usage: Stablecoins with reserve assets of less than 500,000 dirhams and a total number of token holders not exceeding 100 persons are also not subject to this regulation.

Compared to the detailed layered regulatory model of the EU’s MiCA regulation, this regulation’s approach to stablecoin oversight is much more concise.

It should be noted that this regulation not only standardizes the issuers of stablecoins but also covers related activities such as the conversion, custody, and transfer of stablecoins. The following text will focus on analyzing the relevant regulations for stablecoin issuers.

b. The access threshold for the issuer

Stablecoin issuers need to meet the following application requirements when applying for a license.

Legal Form Requirement:

The applicant must be a legal entity registered in the UAE and must obtain permission or registration from the Central Bank of the UAE.

Initial Capital Requirements;

Necessary Documents and Information.

c. Stablecoin value stabilization mechanism and maintenance of reserve assets

First, stablecoin issuers must establish an effective and robust system to protect and manage reserve assets, and ensure:

• Reserve assets are used only for specified purposes.
• Reserve assets are protected from operational risks and other related risks.
• Reserve assets should be protected under all circumstances from claims by other creditors of the issuer.

Secondly, stablecoin issuers must store reserve assets in cash in independent custodial accounts to ensure the independence and security of the reserve assets. The custodial account must be designated for holding the reserve assets of the stablecoin issuer.

Finally, this regulation also provides clear requirements for the maintenance and management of reserve assets:

The value of the reserve assets of the stablecoin issuer must be at least equal to the total fiat currency face value of the stablecoins in circulation, meaning that adequate reserves must be maintained. This requirement is the same as the regulations in the EU and places like Hong Kong.

The issuance of stablecoins must accurately record and verify the inflow and outflow of stablecoin reserve assets, and regularly check the results of system records against actual reserve assets, thereby ensuring the consistency between the book value and actual value of the reserve assets.

Stablecoin issuers need to hire an external audit team for monthly audits and ensure the independence of that audit team — the audit team has no direct affiliation with the stablecoin issuer. The third-party audit team will confirm that the value of reserve assets is no less than the fiat value of the circulating stablecoins. It can be seen that this regulation has relatively high requirements for the audit of reserve assets. Currently, the largest stablecoin USDT’s issuer, Tether, only conducts quarterly audits and does not meet the transparency requirements for audits set by this regulation.

Stablecoin issuers must establish sound internal control measures and procedures to protect reserve assets from risks such as misappropriation, fraud, and theft.

d. Compliance requirements in the circulation link

This regulation mainly discusses the compliance of stablecoin circulation from the following several perspectives:

[Only stablecoins used as payment tools, not interest-bearing stablecoins]
First of all, this regulation clarifies that stablecoins are not allowed to pay customers any interest or other benefits related to the holding period. In other words, stablecoins can only be used as pure payment tools and cannot possess any financial attributes. Therefore, under the framework of this regulation, interest-bearing stablecoins (such as the USDY token issued by Ondo) are completely unrecognized. This regulation is also consistent with the mainstream regulatory positions in various regions.

[Redeem stablecoin without restrictions]
Secondly, stablecoin holders can redeem their stablecoins for the corresponding fiat currency at any time without restrictions. The stablecoin issuer must clearly state the redemption conditions and related fees in the customer agreement. Additionally, the stablecoin issuer shall not charge unreasonable redemption fees beyond reasonable costs.

[Counter-terrorism financing and anti-money laundering requirements]
The issuer of stablecoins, as the anti-money laundering obligated party, must comply with the applicable anti-money laundering/anti-terrorism financing laws and regulations in the UAE, and establish a comprehensive and effective internal anti-money laundering strategy and internal control measures.

Generally speaking, the anti-money laundering / counter-terrorism financing responsibilities for stablecoin issuers will directly apply to the relevant regulations currently in force in that country. For example, stablecoin issuers in Hong Kong are also required to comply with the relevant provisions of the Hong Kong Anti-Money Laundering Ordinance. This essentially incorporates stablecoin issuers into the overall anti-money laundering regulatory framework of the country or region for joint regulation.

[Payment and Personal Information Protection]
Stablecoin issuers should establish relevant policies to protect and maintain the personal data of users they collect; however, stablecoin issuance may disclose the aforementioned personal data to the following institutions under specific circumstances:

• Central Bank of the UAE;
• Other regulatory agencies approved by the central bank;
• Court;
• or other government agencies with access rights.

3. Singapore

1. Regulatory Process

In December 2019, the Singapore authorities introduced the Payment Services Act, which clarified the definition of Payment Services Providers, entry requirements, corresponding licenses, and related regulations.

The Monetary Authority of Singapore (MAS) issued a consultation paper to the public in December 2022 regarding the proposed Stablecoin Regulatory Framework, seeking public feedback. Less than a year later, on August 15, 2023, MAS officially released the Stablecoin Regulatory Framework, which applies to single-currency stablecoins (SCS) issued in Singapore that are pegged to the Singapore Dollar or G10 currencies.

2. Standard documents

• Payment Services Act
• Stablecoin Regulatory Framework

Among them, the “stablecoin regulatory framework” serves as a supplement to the “Payment Services Act,” further clarifying the compliance requirements for stablecoin issuers.

3. Regulatory authorities

Regulated by the Monetary Authority of Singapore (MAS), responsible for issuing stablecoin issuance licenses and compliance supervision.

4. Core of the regulatory framework

a. Definition of stablecoin

Article 2 of the “Payment Services Act” defines Payment Token as follows:

(1) Expressed in units;

(2) Not priced in any currency, and its issuer does not peg it to any currency;

(3) is or aims to become a medium of exchange accepted by the public or a part of the public, used for the payment of goods or services or for the settlement of debts;

(4) Can be transferred, stored, or traded electronically.

(The above image is the original text of Article 2 of the “Payment Services Act” defining digital payment tokens)

Similarly, in order to ensure the fluency and consistency of the text, the term “stablecoin” will be used in place of “payment token” in the following text.

The subsequent release of the “Stablecoin Regulatory Framework” provides a stricter definition of stablecoins, specifically regulating single-currency stablecoins issued in Singapore that are pegged to the Singapore dollar or G10 currencies.

b. The access threshold for issuers

If a stablecoin issuer wants to apply for a MAS license, they must meet the following three conditions:

• Base Capital Requirement: The capital of stablecoin issuers must be no less than 50% of annual operating expenses or 1 million SGD.
• Business Restriction Requirement: Stablecoin issuers must not engage in trading, asset management, staking, lending, or other businesses, nor may they directly hold shares of other legal entities.
• Solvency requirements: Liquid assets must meet the scale needed for normal asset withdrawals or be above 50% of annual operating expenses.

c. Stablecoin value stabilization mechanism and maintenance of reserve assets

For the management and maintenance of stablecoin reserve assets, MAS has established the following regulations:

First, the reserve assets of the issuer of the stablecoin can only consist of the following low-risk, highly liquid assets: cash, cash equivalents, and bonds with a remaining maturity of no more than three months.

The issuer of the above assets must be: a sovereign government, a central bank, or an international institution with a rating of AA- or higher.

It can be seen that MAS has very strict and detailed restrictions on the reserve assets of stablecoin issuers. This is in stark contrast to the regulatory framework of the UAE, which does not impose clear restrictions on the reserve assets of stablecoin issuers.

Secondly, stablecoin issuers must establish a fund and set up segregated accounts to strictly separate their own funds from reserve assets.

Finally, the daily market value of the reserve assets of the stablecoin issuer must be higher than the circulation scale of the stablecoin to ensure adequate reserves.

d. Compliance requirements in the circulation stage

Stablecoin issuers are required to fulfill legal redemption obligations. Stablecoin holders can freely redeem their stablecoins, and the stablecoin issuer must redeem the holders’ stablecoins at face value within five working days.

This only represents the personal views of the author and does not constitute legal advice or opinions on specific matters.

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1. This article is reproduced from [TechFlow] The original title is “In-Depth Analysis by Web3 Lawyers: A Detailed Explanation of the Stablecoin Regulatory Frameworks in the EU, UAE, and Singapore,” copyright belongs to the original author [ Crypto Salad], if there are any objections to the reprint, please contactGate Learn teamThe team will process it as soon as possible according to the relevant procedures.
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