Can MiCA drive the revival of euro stablecoins?

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

MiCA officially comes into effect on December 30, 2024, marking a turning point in the EU's attitude towards crypto assets.

While the euro occupies an important 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 and Circle EU Policy Head Patrick Hansen expects this situation to change. He emphasized the importance of MiCA as "the most comprehensive regulatory framework for crypto assets in the world."

"The EU has a unique opportunity to position itself as a global center for crypto innovation,"Hansen pointed out.

Why the Euro Lags in Stablecoins

Hansen attributes the difference between the euro and the dollar on-chain to several factors:

1. Dollar-dominated liquidity:“The network effect created around dollar stablecoins is something that euro stablecoins cannot catch up with. 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 in the euro area have called the business model of stablecoins into question.”

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.

The implementation of the bill has already attracted institutional interest, and major European banks and other players are exploring or launching euro stablecoin products,

Hansen noted. He highlighted that Circle launched the EURC in compliance with MiCA, with its reserves managed entirely by a French-regulated entity, noting that “we’ve seen a 60-70% growth in EURC supply, driven by launches on multiple blockchains.”

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

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

Converging On-Chain Euro Use Cases

Hansen sees two main drivers for euro stablecoin adoption: regulated crypto capital markets and real-world applications for stablecoins.

“Only stablecoins that are authorized under EU rules will eventually be used as trading pairs in regulated crypto markets,” Hansen said. “I would not be surprised to see significant growth in this area.”

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

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

However, while MiCA provides a solid foundation, Hansen warned that it is only “version 1.0” and must evolve to address emerging challenges. He also warned that the EU’s travel rule (TFR), which requires additional user verification for certain transactions, could create friction — especially for self-hosted wallets.

Ultimately, MiCA’s success will depend on whether it can strike a balance between promoting innovation and protecting consumers and creating competitive local markets.

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