The agreement must still go through Brussels' complex legal process and may not take effect until 2024. Officials say it will make the EU the world's first large region with common crypto-asset regulation. Although some countries have national laws governing digital assets, these would be the first EU-wide rules.
While increasing the burden on cryptocurrency exchanges and issuers, it will also make it easier for them to provide cross-border services in the EU's 27 member countries.
Authorities in the United States are also grappling with how to regulate the rapidly expanding cryptocurrency industry. Currently, it is a patchwork system, with cryptocurrencies crammed into securities and commodities regulations.
US Treasury Secretary Janet Yellen convened a group of financial regulators from across the government on Thursday to discuss regulating stablecoins and intensifying efforts on Capitol Hill to draft new legislation.
According to a person familiar with the matter, the group was open to supporting alternative forms of regulation for stablecoins other than imposing banklike requirements on issuers' reserves, indicating that the Biden administration is broadening its approach on the issue.
The same group of regulators had previously recommended to Congress that stablecoins be regulated similarly to banks. By the end of the year, lawmakers and Biden administration officials hope to pass legislation strengthening federal regulation of stablecoins.
The regulatory discussions come after months of turmoil in the cryptocurrency market. TerraUSD, a stablecoin, crashed in early May, causing widespread panic in the sector. Bitcoin and other cryptocurrencies have also dropped in value. Customers were told they couldn't withdraw their funds, highlighting how vulnerable investors are in a largely unregulated market.
Stablecoins are billed as bitcoin's nonvolatile cousins, with values that are supposed to be pegged to $1.
Investors will be protected under the EU's Markets in Crypto-Assets framework, or MiCA, which was agreed on late Thursday. A key feature will be that stablecoin issuers must keep reserves to cover mass withdrawals and be based in the EU.
"This landmark regulation puts an end to the crypto wild west and confirms the EU's role as a standard-setter for digital topics," said France's Economy Minister Bruno Le Maire.
Because the defunct TerraUSD was not backed by hard currency reserves, holders were not guaranteed $1, the coin's peg, even if its value plummeted.
Large stablecoins will also face a daily transaction cap of about $200 million, according to European Parliament member Ernest Urtasun in a Twitter thread outlining the plans.
Mr. Urtasun stated that for tokens with no issuers, such as bitcoin, trading platforms will be required to outline a coin's technology and purpose, and will be held liable for any misleading information. They will also be required to disclose risks to consumers and follow rules regarding the disclosure of inside information.
Dante Disparte, chief strategy officer at Circle Internet Financial Ltd., the issuer of USD Coin (a stablecoin backed by reserves), said that while the framework wasn't perfect, he welcomed a "harmonized, comprehensive framework, across an entire region, that provides market participants regulatory clarity."
"We welcome the creation of a single European market for crypto and blockchain," said Martin Bruncko, executive vice president for Europe at crypto exchange Binance. This is the only way for the EU to remain a global leader and top player in the next technological wave."
The European Securities and Markets Authority will have the authority to prohibit and restrict exchange services, as well as maintain a register of noncompliant platforms.
NFTs, or nonfungible tokens, will be largely excluded from the framework. According to EU officials, the European Commission may develop a separate proposal for these digital tokens, which prove ownership of digital assets such as art, music, and video.
For the time being, the framework is set to exclude decentralized finance, or DeFi, the umbrella term for financial services provided on public blockchains. This area of the crypto universe has expanded rapidly over the last two years. Because some of these platforms have experienced liquidity and stability issues, the recent decline in cryptocurrency valuations has raised concerns about consumer protections.
In June, European Central Bank President Christine Lagarde called for a second version of MiCA to regulate crypto-asset staking, which involves users locking up assets in exchange for a higher yield, as well as crypto lending and DeFi.
Rebecca Rettig, general counsel for crypto-lending platform Aave, stated on Twitter that the company intends to work with policymakers as EU officials seek to broaden regulation to govern DeFi platforms.
In September 2020, the commission proposed the MiCA framework. It stated that it wishes to foster innovation while also providing strong investor protection.
Before it can begin the expected lengthy process of writing guidelines and having the framework transposed to EU countries, the framework must be approved by member states and the European Parliament.