Europe's MiCA Stablecoin Bet Runs into the Dollar Wall

The American stablecoin issuer Circle has credited the EU's Markets in Crypto-Assets regulation in part for EURC's expansion, saying in a blog post that MiCA "didn't necessarily create inherent demand for euro stablecoins, but it cleared the path for serious institutional and enterprise adoption."

Others argue the opposite: that MiCA's requirements are making it harder for companies to build the scale needed to compete with dollar-denominated tokens.

That gap remains substantial. The global stablecoin market stood at about $307bn as of 18 Aug, according to DeFiLlama, dominated overwhelmingly by dollar-denominated tokens including $183bn of USDT and $72bn of USDC. Euro stablecoins made up only about $760mn. But the euro segment is expanding much faster, growing 239% from roughly $224mn in December 2024, compared with about 50% growth in the broader stablecoin market since the start of 2025.

Regardless of a stablecoin underlying asset, MiCA applies to all tokens operate within the euro-zone, as well as those who issue euro-denominated stablecoins outside the bloc, making it unavoidably intertwined with euro stablecoins' future. 

The rules that bind

Jonathan Galea, CEO of the Maltese advisory firm, BCAS, worked on drafting Malta's pre-MiCA crypto framework. He said the legislation started off in the right direction by seeking to give euro-denominated stablecoins an edge over tokens pegged to other fiat currencies, such as the US dollar. However, he notes that the regulators "haven't gone far enough" to grant an "even greater benefit to those issuers who are willing to comply with MiCA." 

Stablecoins under MiCA are subject to a number of restrictions that have been ruled out or softened in later regulations drafted elsewhere. 

Under MiCA, e-money token issuers must keep at least 30% of the funds backing their tokens in deposits at credit institutions, while the remainder can be invested in secure, low-risk and highly liquid assets. For stablecoins classified as significant, the deposit requirement can rise to at least 60%.

Those reserve requirements were among the reasons Tether cited when it said it wouldn't seek MiCA authorization for USDT, the world's largest stablecoin with a market capitalization of about $183bn. CEO Paolo Ardoino has argued that requiring issuers to hold such a large proportion of reserves as bank deposits could introduce additional risks by exposing stablecoin reserves to the European banking system. Tether's decision left USDT non-compliant with MiCA, prompting a number of crypto platforms to delist or restrict the token for EU users over the past months.

In contrast, over in the US, the GENIUS Act, the 2025 law that created a regulatory framework for payment stablecoins, allows for backing in a wider set of high-quality liquid assets like demand deposits and short-term Treasuries without any forced bank-deposit floor. 

Yield treatment also diverges. GENIUS prohibits stablecoin issuers from paying interest but leaves third-party service providers free to offer rewards on stablecoin balances, a gap US lawmakers are seeking to narrow through the CLARITY Act, which is currently awaiting action in the Senate. MiCA offers no equivalent pathway beyond a narrow, unintended borrowing-and-lending exemption. 

Galea pointed out that MiCA's reserve rules are "more onerous" than those under GENIUS, and that the EU framework offers no "element of reciprocity" for foreign issuers. The result, according to those who have compared the regimes, is that euro-denominated issuance faces higher costs and fewer product features than its dollar counterparts operating under the more flexible US rules, making it harder for euro tokens to close the competitive gap.

The lack of clear rules on multi-issuance under MiCA compounds the friction. While the regulation does not prohibit an issuer from offering the same stablecoin from multiple jurisdictions, it provides no guidance on how reserves should be allocated or supervised across borders. 

The result has been inconsistent approaches among national regulators. Some have authorized multi-issuance for certain dollar tokens, while others, including Luxembourg where Ripple holds its electronic money institution licence, have taken a more cautious stance pending EU-level clarity. Matt Osborne, Ripple's head of EU Policy, told Sandmark that this resulting uncertainty "deprives European businesses of choice," noting that, in the long term, "if euro stablecoins are going to play a global role, then Europe will need to find a solution [for it]."

The domestic case

Beyond regulatory differences, James Brownlee, CEO of cross-border settlement network t-0, said liquidity is ultimately what determines a stablecoin's success. Brownlee, whose company primarily settles transactions using USDT and received a strategic investment from Tether on 6 Feb, said every cross-border payment requires both parties to agree on the same settlement asset. "Only dollar stablecoins are delivering that today," he told Sandmark.

EURC's €400mn liquidity, he explained, while meaningful within Europe, remains insufficient to support currency pairs outside the eurozone. The result is that non-dollar tokens are locked out of the global trade corridors where the dollar dominates. 

Brownlee sees a more realistic path for euro and non-dollar stablecoins is to remain domestic. He argued that non-dollar tokens "should be focused on how they can provide better fintech services applications, better domestic payments to customers within the country where that stablecoin is issued." 

Startups are therefore a key element for boosting the use of local currency tokens in Brownlee's eyes. He explained that startups have the ability to create solutions specific to the area they operate in, thus giving local currency tokens increased demand. 

However, the introduction of MiCA may have restricted founders' ability to start a business in the euro zone. Lukas Enzersdorfer-Konrad, deputy chief executive of the Austrian exchange Bitpanda, which holds MiCA licenses in Germany and Austria, said a founder starting today needs more capital and time than before, due to the capital requirements needed to withstand the licencing procedure. He expects fewer European startups in regulated crypto services as a result, and more of them clustering within decentralized finance (DeFi), which remains untouched by the regulation. His comments came before Bitpanda itself became an example of the regulatory burden: Austria's Financial Market Authority disclosed a €70,000 ($81,000) penalty against the company for MiCA whitepaper and marketing breaches

The latest MiCA register, updated on 18 Aug, held 325 authorized crypto-asset service providers across 30 markets, against more than 1,200 firms holding national crypto registrations before the regime began. 

"Getting new [licences] will become much harder for new companies," he said, noting that a European bank adding crypto services needs only an extension to a license it already holds, where a firm built from scratch carries the whole burden from the start. His expectation is that founders will build businesses offshore first and apply for licensing when the startup is mature enough, potentially leading crypto startup formation to decline in the region.

Risking dollarization

The European Central Bank (ECB) has repeatedly framed the rise of dollar-denominated stablecoins as a direct threat to monetary sovereignty. ECB President Christine Lagarde has warned that they risk "digital dollarization" inside Europe, potentially weakening the transmission of monetary policy, encouraging deposit substitution away from euro-area banks and eroding the euro's international role. 

Even euro-denominated private stablecoins, in the ECB's view, carry financial-stability risks that outweigh any benefit to the currency's standing, making the regulatory friction perhaps more of a feature than a bug. The preferred European response remains public infrastructure, driving a focus on developing a digital euro and wholesale tokenized settlement projects, rather than a more expansive private-token regime.

Whether that concern is well founded divides the European crypto industry. BCAS's Galea acknowledged the dominance of dollar stablecoins but questioned whether the EU is right to rely so heavily on a still-distant digital euro rather than create a more welcoming regime for privately issued euro-denominated tokens. "What we have seen so far in the history of stablecoins is that any efforts to issue a CBDC have failed [...] In the meantime the market for the so-called private stablecoins has simply exploded," he said. 

Brownlee, of t-0, shared a similar view, noting that central banks can retain control through licensing and prudential oversight, so the technologies themselves are not inherently incompatible with monetary authority. "I don't think the European approach is necessarily the correct one to just pull back completely."

Ripple's Osborne, argued that the domestic dollarization risk inside the eurozone has been overstated. He highlighted that the euro is already a stable, trusted currency backed by strong institutions, adding that there is "no real compelling reason for a consumer or a firm in the EU to start using a dollar for domestic payments... I haven't heard any good argument for why anybody would do that, quite honestly."

The Commission opened its targeted consultation on the MiCA review on 20 May, allowing industry participants to suggest possible changes, with a report due by June 2027. Osborne said he felt that work to bring euro-denominated assets onchain would move demand before any adjustments to the regime concluded. "There will be a correction, at least to some extent in the next few years," he said. "I would hope."