Web3 Lawyer's In-depth Interpretation: A Detailed Explanation of the Stablecoin Regulatory Framework in the EU, UAE, and Singapore

2025-06-24 11:10:20

In previous articles, the encryption 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 developed relatively complete stablecoin regulatory frameworks.

In this article, the Encryption Salad team selects 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 thought logic, combined with the blockchain project experience of the Encryption Salad team, we will outline the regulatory frameworks for the stablecoins of the three.

This article will analyze the regulatory framework of stablecoins mainly from the following perspectives: regulatory process, normative documents, regulatory authorities, and the core content of the regulatory framework. The specific content framework is as follows:

(1) European Union

Regulatory processes and normative documents
Corresponding regulatory authorities
Main Content of the Regulatory Framework

a. Definition of stablecoin

b. The access threshold for the issuer

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

d. Compliance requirements in the circulation link

e. Important special regulatory rules for ART

(2) United Arab Emirates

Regulatory processes and regulatory documents
Corresponding regulatory authorities
Main content of the regulatory framework

a. Definition of stablecoin

b. The access threshold for the issuer

c. The mechanism for stabilizing coin value and maintaining reserve assets

d. Compliance requirements in the circulation link

(3) Singapore

Regulatory processes and regulatory documents
Corresponding regulatory authorities
Main Content of the Regulatory Framework

a. Definition of stablecoin

b. The access threshold for the issuer

c. The mechanism for stabilizing the coin value and maintaining 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 Process and Normative Documents

The European Union officially released the core regulatory document “Regulation on Markets in Crypto-Assets” (hereinafter referred to as the “MiCA Regulation”) in June 2023. The MiCA Regulation aims to establish a unified regulatory framework for crypto assets to address 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 should 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 competent authorities of the member country where the stablecoin issuer is located also have some regulatory powers 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 encryption asset that stabilizes its value by referencing only one official currency. Moreover, the MiCA Regulation clearly states that the function of EMT is very similar to the function defined in Directive 2009/110/EC as Electronic Money. Like electronic money, EMT is essentially an electronic substitute for traditional fiat currency, which can be used in everyday life scenarios such as payments.

II. Asset-Referenced Tokens (ART)

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

The difference between EMT and ART is not just in the types and quantities of official currencies referenced; Article 19 of the MiCA Regulation elaborates on 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 claim against the issuer of 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 a statutory claim.

In comparison, ART does not necessarily grant its holders a creditor’s claim against the issuers of such encryption 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 par value of the reference currency, or impose restrictions on the redemption period. If ART holders do not have a creditor’s claim against their issuer, or if their claims do not match the par value of the reference currency, then the holders’ confidence in the stability may be shaken.

The following analysis regarding the regulatory aspects will be conducted from the dimensions of ART and EMT respectively.

Regarding algorithmic stablecoins, the MiCA legislation has not included algorithmic stablecoins within the regulatory framework for stablecoins. Since algorithmic stablecoins do not have a clear reserve tied to any real assets, 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 stance of the MiCA legislation on algorithmic stablecoins is very similar to the policy directions in the United States, Hong Kong, and other regions. This also indicates that regulatory agencies 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. Issuer’s Access Threshold

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

The first type is a legal entity or other business that has been established in the European Union and has obtained authorization from the competent authorities of its member states in accordance with Article 21 of the MiCA Regulation. If a business wishes to apply for authorization from the relevant authorities in advance, the application should include: issuer’s 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 explicitly states that the credit institution needs to provide various relevant documents to the competent authorities within 90 days, including the operational plan, legal opinions, token governance arrangements, etc.

However, MiCA also adds provisions for exemptions regarding the qualifications of issuers. When an issuer meets any of the following conditions, they can be exempted from the qualifications required for ART issuers mentioned above.

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 circulates 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 they are not subject to any regulation. In fact, the ART issuer is still required to draft a cryptocurrency white paper in accordance with Article 19 of MiCA and notify the competent authority of its home member state of the white paper to complete the filing.

(The above image is the original text related to 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, required 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 each day in that quarter, and the average transaction amount, among other information.

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

I.350,000 euros;

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

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

In summary, the MiCA Act adopts a more flexible “tiered regulatory” model for ART token issuers.

The issuer of ART, whose average circulating value does not exceed 5,000,000 euros, or is issued and circulated only to qualified investors, may be exempt from the issuer qualification requirements, but must still draft an encryption asset white paper and notify the competent authority.

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

For ART issuers with an average circulating value exceeding 100,000,000 euros, they are required to meet the issuer qualification requirements while also undertaking additional reporting obligations.

All ART issuers, regardless of the average circulating value of their tokens and the issuing group, must have sufficient own funds.

(The qualification requirements of issuers corresponding to different ART in the above image)

c. Stablecoin value stabilization mechanism and maintenance of reserve assets

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

I. Able to cover risks related to assets linked to ART;

II. And it can address the liquidity risk related to the permanent redemption rights of the holders.

That is to say, 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 redeeming.

However, the MiCA Regulation does not provide clear regulatory standards regarding the amount and types of reserve assets for ART issuers, but designates the European Banking Authority to oversee the drafting of relevant technical standards to further clarify 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 isolated from the issuer’s own assets, and that the reserve assets are entrusted to a third party for independent custody.

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

I. The investment targets are high liquidity financial instruments with the least market risk, credit risk, and concentration risk;

II. The investment should be able to be quickly liquidated, and have minimal adverse impact on 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 the reserve assets.

d. Compliance in the circulation stage

Firstly, Article 39 of the MiCA Act 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 according to the holder’s request. At the same time, the ART issuer should establish 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 a limit on the maximum circulation of ART. If the quarterly trading volume of a certain ART and the daily average trading value exceed 1 million transactions and 200,000,000 euros respectively, the issuer shall immediately cease further issuance of the ART tokens and submit a plan to the competent authority within 40 working days to ensure that the trading volume and trading value of the tokens are below the above standards.

This means that the MiCA Regulation 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 liquidity risks that may arise from an excessively high circulation of ART.

e. Special regulatory rules for important ART

Important ART (Significant Asset-Referenced Tokens) refers 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 value or reserve asset scale of this ART is higher than 5,000,000,000 euros;

III. The average daily trading volume and average daily total trading value of the ART exceed 2.5 million transactions and 500,000,000 euros, respectively;

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

IV. THE ART ISSUER IS A CORE PLATFORM SERVICE PROVIDER DESIGNATED AS A GATEKEEPER UNDER 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-backed tokens for payment and remittance.

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

VII. The ART issuer also issues other ARTs, EMTs, or provides at least one encryption asset service (Crypto-Asset Service).

When an ART satisfies three of the above seven criteria, the European Banking Authority should classify the ART as an important ART. and that the supervisory responsibility of the ART issuer shall be transferred from the competent authority of the Member State in which the issuer is located to the European Banking Authority within 20 working days from the date of the notification decision, and the European Banking Authority shall carry out subsequent supervision.

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

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

II. Important ART issuers should evaluate and monitor the liquidity demand for tokens to meet the redemption requirements of their holders for the asset reference tokens. To this end, issuers of important 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 body, 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 Relevant Regulations on EMT in the MiCA Act

EMT ( Electronic Money Tokens ) have stricter issuer access thresholds and qualification requirements compared to ART, only certified Electronic Money Institutions ( Electronic Money Institution, EMI ) or credit institutions can legally issue EMT under the MiCA regulation. At the same time, EMT issuers are also required to draft a cryptocurrency white paper and notify the supervisory authority about it.

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 regulations 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,” clarifying the definition and regulatory framework for “payment tokens” (stablecoins).

2. Standard Documents

The core specification document is the “Payment Token Services Regulation” mentioned above (Payment Token Services Regulation).

3. Regulatory Authorities

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

The Central Bank of the UAE has issued the “Regulations on Payment Token Services” and is directly responsible for regulating 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 are not directly subject to the jurisdiction of the Central Bank of the UAE.

This “federal-emirate” dual-track parallel regulatory system, on the one hand, ensures the unified supervision of stablecoin issuance at the federal level, ensures the steady development of the stablecoin industry, and on the other hand, leaves room for institutional innovation and exploration in the financial free zone. Compared with the chaotic and chaotic regulatory system of crypto assets in the United States, the SEC, CFTC, and the Fed, the UAE’s dual-track regulatory system is significantly clearer and more efficient. **

4. Core Content of the Regulatory Framework

a.Definition of stablecoin

The “Regulations on Payment Token Services” (hereinafter referred to as “these regulations”) does not use the concept of “stablecoin” but uses the term “Payment Token” instead. For the sake of consistency in the text, it will also be referred to as “stablecoin” hereinafter.

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.

Exemption Based on Token Type: Tokens used for reward programs, or point-based tokens that circulate only within a specific ecosystem, such as tokens issued in a supermarket’s membership points incentive program, are not subject to this regulation.
Exemption Based on Token Usage: Stablecoins with reserve assets less than 500,000 dirhams and a total number of token holders not exceeding 100 are also not subject to this regulation.
Compared to the detailed layered regulatory model of the EU’s MiCA Regulation, this regulation provides a more concise regulatory model for stablecoins.

It is important to note that this regulation not only regulates 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. Access Threshold for Issuers

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, the stablecoin issuer 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 in all circumstances from claims by other creditors of the issuer.

Secondly, stablecoin issuers must store reserve assets in cash form in independent custody accounts to ensure the independence and security of the reserve assets. These custody accounts 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 stablecoin issuers must at least equal the total fiat currency face value of the stablecoins in circulation, which means they must maintain sufficient reserves. 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 reconcile the system’s recorded results with the actual reserve assets to ensure the consistency between the book value and the actual value of the reserve assets.

Stablecoin issuers need to hire external audit teams for monthly audits and ensure the independence of the audit team — the audit team has no direct association with the stablecoin issuer. The third-party audit team will confirm that the value of the reserve assets is not less than the fiat currency value of the stablecoins in circulation. Thus, it can be seen that the auditing requirements for reserve assets in this regulation are relatively high. Currently, the largest stablecoin USDT, issued by Tether, only conducts quarterly audits and does not meet the requirements for audit transparency 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 for circulation links

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

[Only stablecoins used as payment tools, not recognized as interest-bearing stablecoins]

First of all, this regulation clarifies that stablecoins are not allowed to pay any interest or other benefits related to the holding time to customers. In other words, stablecoins can only be used as a pure payment instrument, and cannot have any financial attributes. As a result, interest-bearing stablecoins (such as the USDY token issued by Ondo) are not recognized at all within the framework of this regulation. This norm is also consistent with the prevailing regulatory stance in various regions.

【Unlimited Redemption of Stablecoin】

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

[Anti-Terrorism Financing and Anti-Money Laundering Requirements]

Stablecoin issuers, as anti-money laundering obligated parties, must comply with the applicable anti-money laundering / counter-terrorism financing laws and regulations of the UAE and establish comprehensive and effective internal anti-money laundering strategies and internal control measures.

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

【Payment and Personal Information Protection】

Stablecoin issuers should formulate 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 permissions.

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 thresholds, corresponding licenses, and other relevant regulations.

The Monetary Authority of Singapore (MAS) issued a consultation paper on the proposed Stablecoin Regulatory Framework in December 2022, 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” and further clarifies 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 Tokens 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 be a medium of exchange accepted by the public or a part of the public for the payment of goods or services or the settlement of debts;

(4) Can be transferred, stored, or traded in electronic form.

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

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

The subsequently released “Stablecoin Regulatory Framework” has a stricter definition of stablecoins, only regulating single-currency stablecoins issued in Singapore and pegged to the Singapore dollar or G10 currencies.

b. Issuer’s access threshold

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 the annual operating expenses or 1 million SGD.
Business Restriction Requirement: Stablecoin issuers are not allowed to engage in trading, asset management, staking, lending, or any other business, nor may they directly hold shares of other legal entities.
Solvency Requirements: Liquid assets must meet the scale required for normal 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 stablecoin issuers 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.

Furthermore, the issuer of the above assets must be: sovereign governments, central banks, or international institutions 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 open isolated accounts to strictly separate their own funds and reserve assets.

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

d. Compliance Requirements in the Circulation Link

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

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

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