European Commission draft proposal on crypto-assets has stablecoins in its crosshairs

A draft proposal on crypto assets shows the European Commission is looking to nix generated interest on stablecoins, among other planned regulations.

The proposal, obtained by Politico, is part of the Digital Finance package for regulation and strategy within the European Union (EU). The package includes a proposal for a pilot regime on blockchain market infrastructures and a proposal to clarify or amend related EU regulations. The draft proposal specifically includes and addresses stablecoins due to their "potential to become widely accepted and potentially systemic" and subsequent possible risks to "orderly monetary policy."

The proposal calls for joint supervision of token issuers by the national authorities and the European Banking Authority (EBA). The EBA would be in charge of compliance related to the proposal's requirements, while national authorities enforce their own regulations.

Stablecoins are poised to receive more scrutiny from the Commission, with one proposal advocating that currency-pegged tokens or "asset-referenced tokens" should be "subject to more stringent requirements, compared to other crypto-assets" due to their potential to manipulate financial systems as fiat value is transferred across borders.

For this reason, the Commission is proposing an EU-approved authority review stablecoin white papers before an issuer gets the green light to distribute tokens. This wouldn't apply to coin offerings only open to qualified investors.

But some stablecoins would still be exempt from scrutiny. Those that are algorithmic, like NuBits, are of less concern since their stability is protocol-based rather than pegged to a fiat currency or basket of such currencies. 

But for fiat-pegged tokens, the EBA could begin charging issuers fees to cover its costs. It's also looking to prohibit issuer-granted interest on the tokens.

"Issuers of e-money tokens, and any crypto-asset service providers, should be prohibited from granting interests to holders of e-money tokens for the length of time such holders are holdings the e-money tokens."

The proposal as it stands is in draft form and subject to change before reaching the European Parliament.