The EU’s landmark crypto regulation has a problem. It made euro stablecoins highly secure. It also made them commercially unviable.
That’s according to a new report from Blockchain for Europe. The euro’s a major global currency. But euro stablecoins account for less than 1% of global stablecoin volume.
The report blames MiCA’s design. The rules prioritize safety over growth.
ECB official Ulrich Bindseil and Erwin Voloder drafted the report. They examined how MiCA hampered euro stablecoin adoption.
The issue? MiCA’s rules for euro electronic money tokens.
Euro stablecoins must be fully backed. They can’t pay interest to holders. Period.
The remuneration ban was intentional. Regulators didn’t want stablecoins replacing bank deposits. But interest rates are positive now. Euro stablecoins can’t compete with traditional deposits. They can’t compete with dollar stablecoins either. Dollar stablecoins route yield through DeFi protocols.
Euro stablecoins? They’re stuck paying nothing.
MiCA’s reserve requirements add another layer of pain.
At least 30% of EMT reserves must be held as bank deposits. For significant issuers? That jumps to 60%.
The authors call this unique among major jurisdictions. They’re not wrong.
Their proposal: a more flexible regime. Align it with the EU Liquidity Coverage Ratio. Allow a broader mix of high-quality liquid euro assets. Replace fixed thresholds with transparency rules.
The paper doesn’t call for a complete overhaul. It recommends targeted reforms. Reserve rules. Remuneration rules. Disclosure provisions.
The authors also suggest something else. Limited access to central bank settlement accounts. Only for large stablecoin issuers. Only during severe market stress.
They contrast MiCA with the US GENIUS Act. Both ban direct interest payments. But the GENIUS Act allows dollar stablecoins to anchor DeFi lending pools. Yield strategies work. Liquidity flows. No issuer-paid returns needed.
EU officials are starting to discuss “MiCA 2.” Some policymakers in Brussels are reportedly open to changes. Crypto markets are maturing. The framework might need updates.
But supervisors are pushing back. The European Banking Authority warned that loosening standards could weaken safeguards. It could invite regulatory arbitrage.
The ECB flagged systemic risks too. Widespread euro stablecoin adoption could drive flows into short-dated sovereign bonds. Mass redemptions could strain liquidity.
This debate reveals a fundamental tension in crypto regulation. How do you foster innovation without compromising financial stability? How do you stay competitive without taking stupid risks?
Whether EU lawmakers embrace these recommendations remains uncertain. But the conversation signals something important. MiCA’s first iteration may have overcorrected. Caution won. Competition lost.
Now they’re reconsidering.
