The European Union’s main executive body has taken a soft approach toward stablecoins, contrasting with that of the European Central Bank (ECB) and sparking industry optimism.
In response to ECB concerns on potential bank run risks stemming from stablecoin multi-issuance in Europe and third countries, the European Commission (EC) said such risks are “highly unlikely.”
A spokesperson for the Commission told Coinpectra, “Even in the highly unlikely event of a run on a jointly issued token, redemptions by foreign holders would primarily occur in jurisdictions like the US, where most tokens circulate and the bulk of reserves are held.”
The Commission’s stance on stablecoin multi-issuance in the EU and elsewhere has significant implications for the industry, marking a major win, according to local industry observers.
ECB warned of bank run risks in April
Brussels’ softening approach to foreign stablecoins contrasts with previous warnings from the ECB, which published a non-paper in April on the EU and third-country stablecoin multi-issuance.
“An EU and third country stablecoin multi-issuance scheme would significantly weaken the EU’s prudential regime for electronic money token (EMT) issuers by increasing the likelihood of a run as EU issuers may not have enough reserve assets under the supervision of EU authorities to fulfil redemption requests by both EU and non-EU token holders,” the ECB wrote.
The ECB also warned that joint stablecoin issuance with third countries could undermine financial stability by weakening safeguards for EU consumers and bypassing critical protections of the Markets in Crypto-Assets Regulation (MiCA).
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It may also enable foreign issuers to falsely claim EU-level compliance, shift regulatory accountability to EU authorities without proper oversight, and open the door for non-EU firms to access the single market without meeting EU standards, the non-paper argued.
Brussels says the risks are manageable
After addressing the ECB’s warnings, the Commission in June issued an in-depth analysis of the implications of the joint stablecoin issuance with third countries in a paper titled “Stablecoins and digital euro: friends or foes of European monetary policy?”
“We find that there are significant institutional and regulatory barriers to wider adoption of foreign stablecoins in the euro area,” the Commission said in its study, adding that MiCA regulation has “discouraged large foreign issuers from registering in Europe.”
The Commission specifically referred to Tether, the issuer of USDt (USDT), the world’s largest stablecoin by market capitalization, which refused to comply with MiCA due to reasons including the requirement to keep at least 60% of their reserves in European banks.
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According to the Commission, the risks of the joint stablecoin issuance with third countries are manageable with existing policies, as issuers can be required to have a rebalancing mechanism to ensure that reserves in the EU match token holdings in the EU.
“Very positive news and even a relief”
According to Juan Ignacio Ibañez, general secretary of the MiCA Crypto Alliance, the Commission’s approach to joint stablecoin issuance with other countries means that the authority will not force issuers like Circle to functionally distinguish between USDC-US and USDC-EU.
“These players are global entities issuing a stablecoin both in the EU and abroad,” Ibañez told Coinpectra, adding that the Commission is effectively advocating for the fungible treatment of locally and internationally issued coins, and for one entity to uphold the redeemability of coins issued by the other entity.
“This is very positive news and even a relief,” Ibañez said. “A major component of a stablecoin’s value lies in its cross-border usability, which stablecoins inherit from blockchain technology itself. Enforcing jurisdictional silos would undermine this fundamental feature and degrade the user experience within the EU,” he added.
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