Challenges Ahead for Trump’s USD1 Stablecoin Under EU’s MiCA Compliance

Since its launch in March, World Liberty Financial’s stablecoin USD1 has gained significant traction, reaching a market cap over $128 million. However, to expand into Europe, it must navigate strict EU regulations under MiCA, which mandate transparency and conflict of interest governance. US Senators have expressed concerns about potential presidential influence on USD1, raising further compliance questions. Experts believe USD1’s success in Europe remains uncertain due to stringent reserve and transaction volume mandates.

World Liberty Financial’s stablecoin, USD1, has attracted considerable investor interest since its launch in March, amassing a market capitalisation of over $128 million. However, if it wants to expand into foreign markets, especially in Europe, it must navigate the complex landscape of EU’s Markets in Crypto-Assets (MiCA) regulation. Experts from Foresight Ventures, Kaiko, and Brickken are saying that adhering to comprehensive compliance measures will be vital for USD1’s growth trajectory.

Launched a month ago, USD1 is a product from World Liberty Financial (WLF), a decentralised finance project with ties to the Trump family. The goal is to bolster dollar dominance globally. Trading volumes have been vigorous, with USD1 reaching nearly $41.6 million in transactions within 24 hours. To solidify its worldwide presence, WLF must act decisively to outpace competitors like USDT and USDC, which currently capture larger portions of the stablecoin market.

To access the European market, USD1 must prepare for the tough compliance mandates set by the EU, the first to create a comprehensive set of legal standards for cryptocurrencies. The MiCA framework includes requirements like full reserve backing, robust reporting standards, and operational limits. Senior Research Analyst Dessislava Ianeva-Aubert pointed out that USD1 would need to hold a significant proportion of its reserves in EU-regulated institutions to comply with these regulations.

After the announcement of USD1, concerns were raised regarding the implications of President Trump’s potential involvement in its issuance. A recent letter from US Senators, led by Elizabeth Warren, expressed worries about the conflict of interest. They emphasised the risks associated with a sitting president benefiting from a digital currency potentially subject to federal oversight, which could undermine trust in financial regulations.

Experts agree that unless USD1 addresses these conflict-of-interest concerns, its chances of obtaining an operating licence in Europe could be diminished. “MiCA mandates clear governance and conflict resolution rules,” said Ianeva-Aubert. Additionally, WLF hasn’t provided adequate information to gauge USD1’s compliance with MiCA standards, especially concerning anti-manipulation protocols.

Given the stringent EU reserve mandates, experts say that having a substantial part of USD1’s reserves in European banks is essential. This requirement could prove challenging for World Liberty Financial and may even pressure them to rethink their operational strategies, with potential ramifications for interest revenue as well since EU banks typically offer lower rates than US counterparts.

The volume caps imposed by MiCA could also hamper USD1’s growth within Europe. If it achieves more than 1 million daily transactions or €200 million in daily trading volume, it risks having to halt new issuances and report to regulators, potentially stifling its adoption. This provision aims to protect the euro’s dominance against foreign currencies gaining traction, adding extra pressure on USD1.

The MiCA regulation firmly categorises stablecoins as payment instruments, distinct from investment vehicles, thereby limiting how they can be structured. Such regulations might deter USD1 from pursuing operations within the EU, as the operational restrictions could hinder market expansion. Experts suggest that it may ultimately be wiser for WLF to target markets outside of the EU where regulations are more favourable.

Though the EU offers a cryptocurrency market, its overall size pales compared to Asia and North America. This raises questions about the feasibility of compliance costs for new projects like USD1. Industry analysts note that WLF might better position USD1 in regions with less strict regulations, thereby speeding up adoption.

The political climate in the US is another factor at play. With supportive leadership, USD1 may thrive domestically without the burdens of EU compliance. However, analysts warn that future regulatory shifts in the US could impact USD1’s growth trajectory significantly. If the political landscape changes, the stablecoin’s viability could be uncertain.

As the market increasingly favours regulated stablecoins, USD1’s long-term survival hinges on its ability to meet compliance demands. The failure to do so would likely exclude it from the lucrative EU market, mirroring the restrictions faced by USDT. If USD1 achieves compliance, it could pave the way for a successful and credible presence in the cryptocurrency market, but challenges loom large on the horizon.