World Liberty Financial's (WLF) recent unveiling of its USD1 stablecoin has sparked considerable discussion and raised regulatory questions, largely due to former President Donald Trump's connection to the project. That’s a big deal because 127,971,165 tokens are already in circulation. USD1 is on a mission to stake its claim to the competitive stablecoin market. Its path to success is fraught with challenges, particularly in navigating the complex regulatory landscape of the European Union and addressing concerns about conflicts of interest. The stablecoin's ability to meet stringent requirements, ensure transparency, and secure a competitive edge will determine its long-term viability and market acceptance.

Regulatory Scrutiny and MiCA Compliance

USD1's ambition to operate within the European market faces significant hurdles due to the EU's Markets in Crypto-Assets (MiCA) regulation. Ultimately, MiCA was intended to create a comprehensive regulatory framework for the crypto-asset market, protect consumers and investors, and ensure financial stability. The comprehensive regulation establishes tough mandates on issuers of stablecoins. They need to completely cover their liabilities with liquid reserves, follow strict guidelines for reporting and transparency, and cap transaction amounts if their stablecoins are not in euros.

Yet experts were already warning that USD1 was not ready to implement USD’s full requirements or enforce MiCA. Dessislava Ianeva-Aubert, a regulatory expert, highlighted key aspects of MiCA, stating:

MiCA’s main requirements for stablecoins are: full reserve backing with liquid assets, strict reporting and transparency rules, a cap of 1 million daily transactions for non-EU currency stablecoins. - Dessislava Ianeva-Aubert

The EU's focus on financial sovereignty means that the widespread adoption of non-euro denominated digital currencies like USD1 could pose risks to the euro's stability. Therefore, in order to mitigate damages, MiCA puts limits on transaction volumes in the EU. This move seeks to protect the euro’s supremacy and protect against future damage. Elisenda Fabrega noted the importance of this provision:

A key provision of MiCA that is often overlooked, but critically important, relates to transaction volume limitations for EMTs denominated in non-euro currencies. - Elisenda Fabrega

She further emphasized the need for monitoring tools and usage controls to avoid unintentional breaches of these limits:

EMTs must implement monitoring tools and usage controls to avoid breaching these limits unintentionally. - Elisenda Fabrega

Governance, Transparency, and Conflicts of Interest

A related and important concern around USD1 is the anticipated conflict of interest, given President Trump’s prospective role. The implications of the relationship between a political leader and a financial product are massive with respect to governance and transparency. Ianeva-Aubert emphasized the importance of strong governance structures:

MiCA requires strong governance, including independent directors and clear separation between owners and managers. Issuers must have clear rules to handle conflicts of interest. - Ianeva-Aubert

To obtain an operating license within the European Union, USD1 will need to address these concerns conclusively. At a minimum, they should show a clear divide between owners, operators and any political control. Failure to act would risk endangering its future in the European market.

US Senators have voiced concerns about the broader implications of a stablecoin linked to a political figure:

The launch of a stablecoin directly tied to a sitting President who stands to benefit financially from the stablecoin’s success presents unprecedented risks to our financial system. - US Senators

While USD1 has partnered with established providers like BitGo for custody, it remains uncertain whether it meets all of MiCA’s anti-manipulation requirements, as noted by Ianeva-Aubert:

While USD1 has announced partnerships with established providers like BitGo for custody, it is not clear if it currently meets all of MiCA’s anti-manipulation requirements. - Ianeva-Aubert

Market Strategy and Competitive Positioning

In order to make that growth sustained, USD1 needs to open up foreign markets and ensure the brand breaks through to longtime established competitors. With the EU crypto market at 31 million retroactively overall since the beginning of 2022. By contrast, Asia has 263 million riders and North America 38 million. This would mean that the USD1 has a better chance of finding more short-term opportunities elsewhere in the world that have laxer regulatory oversight.

Yet chasing after the states and localities with the least regulations isn’t a viable long-term business model. For USD1’s long-term success, it will need to prove its operational capacity to not just meet international best practices, but continually evolve alongside emerging regulatory environments.

Projects ultimately determine their own growth strategy. Given that, currently, the EU represents a secondary market for USD1, the project’s strategic priorities may naturally shift toward regions with less stringent stablecoin regulations to drive its adoption. - Bai

Bai raised concerns about the long-term viability of USD1, considering potential political shifts:

Bai also raised concerns about the long-term viability of USD1, considering potential political shifts:

For USD1, policy longevity is worth watching, as its post-Trump viability faces uncertainty, given potential US political shifts in the coming years. - Bai