A new report from industry group Blockchain for Europe said the European Union’s Markets in Crypto-Assets (MiCA) regulatory framework has made euro-denominated stablecoins safer but less competitive, leaving them trailing behind U.S. dollar–pegged tokens in digital payments and trading.
The “Reforming MiCA for euro stablecoins” paper set out to examine how MiCA is shaping the future of euro‑denominated stablecoins. Based on its findings, it proposed a set of targeted, pragmatic reforms aimed at “ensuring MiCA supports a competitive, resilient and globally relevant euro stablecoin ecosystem,” while urging targeted reforms related to reserves and remuneration.
Citing data from analytics platform DeFiLlama, the report showed that euro stablecoins account for less than 1% of global stablecoin volume, which is far below the level that the euro’s broader role in global markets would imply. To put this in context, the world share of international payments via SWIFT—the largest global messaging system for cross-border payments—has the euro at 37%, just behind the U.S. at 39%, according to MacroMicro data.
The report attributed the disparity between the euro’s much larger role in global markets—when it comes to fiat currency payments compared to stablecoin volume—to certain design choices in MiCA that risk placing Europe on the wrong side of the regulatory “Laffer curve,” where overly restrictive requirements weaken competitiveness and drive activity outside the EU.
The Laffer Curve is a theory formulated by economist Arthur Laffer in 1974 that illustrates a relationship between tax rates and tax revenue, proposing that both excessively high and low tax rates can lead to reduced tax revenue.
According to Blockchain for Europe, something similar arises in regulation: “In the absence of regulation, nothing is achieved in addressing market failures or protecting consumers. Conversely, if regulation is excessively demanding – it may have little effects because the targeted economic activity will no longer happen at all, or migrate to a different, less regulated alternative environment.”
The suggestion is that the MiCA framework’s tighter restrictions on stablecoins, compared to the U.S., for example, have made launching euro-denominated stablecoins a less appealing prospect.
As a result, the paper suggested that “broad skepticism prevails amongst European policymakers and commentators on the trajectory of euro-denominated stablecoins.”
MiCA stablecoin rules
MiCA’s stablecoin provisions came into force in June 2024, bringing a range of new rules for issuers, including conduct and governance requirements around marketing, disclosure of information, and dealing with conflicts of interest; prudential requirements to ensure sufficient liquidity and the ability to meet redemption requests; and issuers being required to be authorized in the EU and publish a ‘white paper’ approved by a national competent authority (NCA).
Issuers of e-money tokens (EMTs)—stablecoins pegged to a fiat currency—must also comply with existing EMD 2 obligations, which include informing authorities on how they safeguard funds received in exchange for e-money issued, ensuring they can “redeem at any moment and at par value” the monetary value of the e-money held, and holding initial capital of not less than EUR €350,000 ($409,290) at the time of authorization.
Some stablecoins may also be considered significant due to their size or other factors and, as a result, may present an increased systemic risk. For these, MiCA mandates additional measures, which have been compared to the regime for classifying global systemically important banks, and the European Banking Authority (EBA) has supervisory responsibilities for such stablecoins.
The Blockchain for Europe paper argued that these various mandates, while providing a good level of consumer and market protection, are potentially a step too far and have led to fewer issuers setting up shop in the EU and exploring euro-pegged stablecoins, which may explain why 99% of the stablecoin market is U.S. dollar-denominated.
So, what’s the solution? The paper proposed several changes that the authors believe could boost the EU stablecoin sector, with the top one being permitting the remuneration of euro-denominated EMTs.
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Reforming remuneration
Under MiCA, issuers of stablecoins that offer remuneration, or yield, on their tokens are effectively prohibited. The intention was to prevent stablecoins from becoming deposit substitutes and to protect against bank disintermediation.
This ban on remuneration, the paper suggested, leaves MiCA-compliant euro tokens “at a particular disadvantage” in a positive-rate environment, especially compared with bank deposits and foreign currency stablecoins that can embed or distribute yield through other mechanisms.
“While regulation should remain strict to ensure liquidity and capital adequacy of stablecoins, there is no convincing economic justification for prohibiting the remuneration of stablecoins,” read the paper, which went on to argue that the combination of strict safeguards and zero interest has created a safe but structurally uncompetitive euro stablecoin segment.
However, restrictions on remuneration are not unique to the EU. The U.S. arguably has the most thriving stablecoin sector, yet similar debates over yield have been raging since the passage of the GENIUS Act last July, which also included an effective ban on yield.
The GENIUS Act states that: “[n]o permitted payment stablecoin issuer … shall pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.”
Advocates are campaigning to remove or loosen this provision of the GENIUS Act, but in the meantime, the U.S. and EU appear aligned on this issue, rather than the EU having a competitive disadvantage as Blockchain for Europe appears to suggest.
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Reserve reform and other suggestions
Another area of MiCA that the industry group suggested revisiting is reserve requirements.
Firstly, it suggested the minimum bank deposit requirement should be removed or reduced: “Replace the rigid 30% and 60% thresholds with a principle-based approach to reserve composition, allowing issuers to allocate across high-quality liquid assets without forcing concentrated exposure to bank deposits.”
On top of this, it argued that broadening and diversifying the eligible “reserve asset universe” would also boost the EU stablecoin space, including by permitting a wider set of euro-denominated high-quality liquid assets.
Beyond remuneration and reserves, which appeared to be Blockchain for Europe’s principal concerns, the paper suggested several other reforms, including introducing a more proportionate and risk-based transparency regime for EMTs; embedding diversification, stress testing, and liquidity management more explicitly in the framework; enabling calibrated access to central bank infrastructure; and providing urgent clarity and a workable framework for cross-border stablecoin usage.
It suggested that, if implemented, “these reforms position euro stablecoins as a regulated, resilient settlement instrument for a future European on-chain economy and for strengthening the euro’s role in global digital finance.”
Blockchain for Europe invited policymakers, industry participants, and stakeholders across the digital asset and payments ecosystem to review the paper’s conclusions and contribute to the ongoing discussion as the MiCA framework continues to evolve.
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Watch | MiCA and the Future of Stablecoins: What Comes Next for Tether?
Source: https://coingeek.com/mica-makes-euro-stablecoin-market-safer-but-less-competitive/