Open hearts, open minds: EU opens door global stablecoins

The European Commission is preparing to clarify that stablecoins issued by a firm with an EU licence may be treated as interchangeable with those issued by the same firm’s non-EU entities. The guidance, expected soon and initially reported on by the Financial Times, may mark a significant shift in how the EU approaches global stablecoin activity.

The clarification will sit within the EU’s existing crypto regime under the Markets in Crypto-Assets Regulation (MiCA), which came into effect in 2023. Under MiCA, issuers of stablecoins (labelled “e-money tokens” or EMTs) must be authorised and must hold most of the reserves backing their tokens in banks based in the European Union. This requirement is designed to help ensure redemptions can be honoured and to otherwise uphold financial stability.

The rules left open the question of whether tokens issued by different arms of the same company (one EU-licensed, one not) would be considered the same. The forthcoming guidance is expected to confirm that they can be, provided certain safeguards are in place. A European Commission spokesperson stated to Reuters that such arrangements can include mechanisms to “re-balance” reserves to match EU-held tokens and stressed that redemptions by non-EU holders would be handled by the non-EU issuing entity.

This approach may allow USD-backed stablecoins, such as Circle's USDC, to circulate more freely in Europe where they are issued under an EU license, even if reserves are held abroad. However, the move won't help Tether whose USDT stabletcoin is not currently regulated under MiCA leading to it being delisted by a number of leading exchanges.

The change comes despite continued resistance from the European Central Bank. ECB President Christine Lagarde this week reiterated concerns about foreign stablecoins, citing risks to monetary policy and EU sovereignty. The ECB has previously warned that pooled reserves in the EU could be used to honour non-EU redemption requests, undermining financial autonomy.

However, momentum outside the EU may be prompting regulators to take a more pragmatic approach. In the United States, the recent progress of the GENIUS Act, a bill aimed at establishing a regulatory framework for stablecoins, is potentially acting as a catalyst.

If implemented, this EU guidance could help foster a more globally integrated stablecoin market while maintaining regulatory control within the bloc. For the blockchain industry, it’s a welcome sign that regulators are starting to engage more constructively with the possibilities of cross-border digital finance.

Written by Steven Pettigrove and Luke Higgins