The European Union’s foremost government physique has taken a comfortable strategy towards stablecoins, contrasting with that of the European Central Financial institution (ECB) and sparking trade optimism.

In response to ECB issues on potential financial institution run dangers stemming from stablecoin multi-issuance in Europe and third international locations, the European Fee (EC) mentioned such dangers are “highly unlikely.”

A spokesperson for the Fee advised Cointelegraph, “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 Fee’s stance on stablecoin multi-issuance within the EU and elsewhere has vital implications for the trade, marking a serious win, in response to native trade observers.

ECB warned of financial institution run dangers in April

Brussels’ softening strategy to international stablecoins contrasts with earlier warnings from the ECB, which printed 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 additionally warned that joint stablecoin issuance with third international locations may undermine monetary stability by weakening safeguards for EU customers and bypassing vital protections of the Markets in Crypto-Belongings Regulation (MiCA).

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It could additionally allow international issuers to falsely declare EU-level compliance, shift regulatory accountability to EU authorities with out correct oversight, and open the door for non-EU companies to entry the one market with out assembly EU requirements, the non-paper argued.

Brussels says the dangers are manageable

After addressing the ECB’s warnings, the Fee in June issued an in-depth evaluation of the implications of the joint stablecoin issuance with third international locations 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 Fee mentioned in its examine, including that MiCA regulation has “discouraged large foreign issuers from registering in Europe.”

The Fee particularly referred to Tether, the issuer of USDt (USDT), the world’s largest stablecoin by market capitalization, which refused to adjust to MiCA as a result of causes together with the requirement to maintain a minimum of 60% of their reserves in European banks.

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In keeping with the Fee, the dangers of the joint stablecoin issuance with third international locations are manageable with current insurance policies, as issuers may be required to have a rebalancing mechanism to make sure that reserves within the EU match token holdings within the EU.

“Very positive news and even a relief”

In keeping with Juan Ignacio Ibañez, a member of the Technical Committee of the MiCA Crypto Alliance, the Fee’s strategy to joint stablecoin issuance with different international locations signifies that the authority won’t pressure 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 advised Cointelegraph, including that the Fee is successfully advocating for the fungible remedy of regionally and internationally issued cash, and for one entity to uphold the redeemability of cash issued by the opposite entity.

“This is very positive news and even a relief,” Ibañez mentioned. “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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