Can MiCA fuel a renaissance of euro stablecoins?

Author: Macauley Peterson, Blockworks; Compiler: Baishui, Golden Finance

As of December 30, 2024, MiCA will officially come into effect, marking a turning point in the EU 's attitude towards crypto-assets.

Although the euro occupies a significant position in TradFi—accounting for 20-30% of global foreign exchange reserves, SWIFT transactions, and trade flows—it accounts for less than 0.5% of global stablecoin circulation.

Industry expert Patrick Hansen, head of EU policy at Circle, expects that to change. He emphasized the importance of MiCA as “the world’s most comprehensive crypto-asset regulatory framework.”

“The EU has a unique opportunity to position itself as a global hub for crypto innovation,” Hansen noted.

Why the euro lags behind stablecoins

Hansen attributes the difference between on-chain euros and dollars to several factors:

1. USD-dominated liquidity: “The network effects surrounding USD stablecoins are something that Euro stablecoins cannot match. European users interacting with the global cryptocurrency market will choose the cheapest and most liquid currency.”

2. Historical negative interest rates: “For a long time, negative interest rates have called into question the business model of stablecoins in the Eurozone.”

3. Regulatory uncertainty: Before MiCA, the lack of a dedicated regulatory framework for euro stablecoins hindered the development of institutional players.

MiCA addresses the third point by creating a clear framework for stablecoins. Hansen noted that the bill’s entry into force has already sparked institutional interest, with major European banks and other players exploring or launching euro stablecoin products. He emphasized that Circle launched EURC in compliance with MiCA and that its reserves are fully managed by French-regulated entities, noting that “we have seen a 60-70% increase in EURC supply, driven by the launch of EURC on multiple blockchains. roll out."

MiCA requires stablecoin issuers to hold reserves proportional to the tokens circulating in the EU. Hansen explained that Circle uses a “dynamic rebalancing” model to comply.

“If we see an increase in the amount of USDC held by the EU, we will increase European reserves accordingly,” he said.

Fusion on-chain Euro use case

Hansen sees two main drivers for euro stablecoin adoption: regulated crypto capital markets and practical adoption of stablecoins.

“Only stablecoins authorized under EU rules will ultimately be used as trading pairs in regulated crypto markets,” Hansen said. "I wouldn't be surprised to see significant growth in this area."

The change prompted cryptocurrency exchanges to delist USDT from trading pairs for EU customers.

Enterprise use cases such as cross-border payments and tokenized financial instruments are gaining traction, Hansen said. "Corporate suppliers in the euro area will inevitably require risk management for euro-denominated assets," he said.

However, while MiCA provides a solid foundation, Hansen cautions that it is only "version 1.0" and must continue to evolve to meet emerging challenges. He also warned that the EU’s Travel Rules (TFR) require additional user verification for certain transactions, which could cause friction – especially for self-hosted wallets.

Ultimately, MiCA 's success will depend on its ability to balance promoting innovation with protecting consumers and creating competitive local markets.

As Hansen said, "Only time (and the market) will tell whether MiCA can achieve its goals."