The MiCA regulation penalizes returns: Coinbase halts the rewards program for USDC in Europe

The introduction of the MiCA regulation has not only brought greater regulatory clarity but also a series of disadvantages for holders of the stablecoin USDC.

The new European law on crypto-assets, which will officially apply from December 30, 2024, is pushing brokers like Coinbase to cease some reward programs.

From tomorrow, European users of the exchange will no longer be able to enjoy returns on their deposits in USDC, and will have to look elsewhere to find new opportunities.

Let’s see all the details below.

MiCA Regulation: USDC yields suffer from transparency and regulatory clarity

In June 2023, the Official Journal of the European Union officially published the MiCA regulation setting precise rules for the so-called “crypto-assets”.

For the first time in history, Europe has clearly expressed itself on the matter of cryptocurrency companies, issuers of stablecoin (particularly USDC) and exchange brokers.

After a decade of regulatory Wild West, the first laws to protect investors and savers have finally arrived, under the heading MiCA.

On one hand, the new regulation, which will be applicable from December 30, 2024, has introduced a long series of advantages, such as greater transparency and regulatory clarity.

Various fintech companies that until recently wanted to invest in the crypto sector were in fact unable to do so due to too many gray areas at the regulatory level.

On the other hand, however, the greater institutional presence in the industry is paid at a high price by the sector, since some typical advantages of the crypto world are beginning to fade.

The MiCA has indeed provided a set of strict rules, including the prohibition of offering interest on stablecoins by the issuers of “electronic money tokens“.

In fact, the same companies that today offer yields ranging approximately from 3% to 12% on assets like USDC, might have to cease their services.

The MiCA prevents the European community from enjoying interest on stablecoin deposits, going in the opposite direction to the rest of the world.

Perhaps the rich interest rates offered on digital currencies are excessively tempting to investors and need to be somewhat dampened.

Let it never be that too much liquidity is withdrawn from the bond sector, mutual funds, and other deposit accounts that offer few percentage points of return (gross) and with high entry and management costs.

Coinbase forced to cease the rewards program on USDC for European customers

Due to some stifling aspects of the MiCA regulation, Coinbase has been forced to halt its lucrative rewards program on USDC.

European users who until today could earn up to 4.35% APY on flexible deposits of the stablecoin will soon find themselves without income.

In an email dated November 28 distributed by Coinbase to its community, it was stated that due to the new laws of the European Union, the exchange is terminating its program.

From December 1st onwards, all customers in the European Economic Area (EEA), which includes a block of 30 nations, will no longer earn any yield on USDC.

Among the countries involved are 27 EU member states as well as  Iceland, Norway, and Liechtenstein. The measure is seen as a significant step backward for the crypto industry, which loses an element of appeal to external investors.

Many customers of the Coinbase exchange will move elsewhere to seek new interests on their USDC.

Various prominent figures in the crypto sector have spoken on X to comment on the disastrous impact of MiCA on USDC holders.

Paul Berg, co-founder and CEO of the crypto infrastructure provider Sablier, sarcastically thanked the institutions for the yield freeze: 

“I am very grateful to the EU for protecting me from earning a yield on my USDC holdings on Coinbase”.

Even Mikko Ohtamaa, co-founder of Trading Strategy, joked about the incident by commenting on a post with the statement: “I feel protected.”

The MiCA regulation was effectively presented as a law designed to “protect investors” and provide a regulatory framework favorable to development.

It’s a pity that, in some ways, it is producing exactly the opposite effect, with many investors who will flee to other more favorable continents.

The various yield opportunities on stablecoins in the DeFi world

As mentioned, several investment companies in Europe will be affected by the MiCA regulation and will no longer be able to earn interest on USDC.

These institutions will have their legs tied as they are unable to trade unregulated stablecoins and are obliged to prevent yield.

In any case the small retail investors will still be able to roll up their sleeves and look for new opportunities in the DeFi world.

Nowadays there are hundreds of decentralized applications that offer excellent interest rates on products in stablecoins like USDC.

For example, on the lending market of Aave an 11.35% yield on USDC deposits is currently offered, with similar rates also for USDT.

On Aave, it is also possible to collateralize the locked amount to borrow other coins in a completely trustless way.

Aave is just one of the many platforms that offer a similar advantage. 

Other respected names in DeFi that support interest on USDC are Compound, Venus Protocol, Solend, and Uniswap (liquidity mining USDC+WETH).

Obviously, to access these services, a minimal experience in the blockchain sector and knowledge of the basic concepts of private wallets is required.

If you are beginners and have always operated on exchanges, temporarily forget about these solutions.

There are also hybrid opportunities in the CeFi world, where one can still seek a profit without having to navigate the complex logics of DeFi.

In the meantime, we remind you that USDT is not subject to MiCA regulation as it cannot be classified as an “Asset Reference Token.” In fact, on some exchanges like Binance, there are still yield opportunities on USDT similar to those that will soon be stopped by Coinbase on USDC.