Key Highlights
- ECB’s warning: Rapid growth of the $300B stablecoin market, 99.58% dollar-backed, may threaten European financial stability and influence monetary policy decisions.
- European response: Nine major European banks plan to launch a euro-backed stablecoin by 2026, providing a local alternative to U.S. tokens.
- Regulatory measures: The EU proposes centralizing stablecoin supervision under ESMA, aiming to reduce dependence on U.S.-based stablecoins and enhance financial safety.
The European Central Bank (ECB) has issued a warning that the rapidly growing $300 billion stablecoin market could pose serious risks to European financial stability. Dutch central bank Governor Olaf Sleijpen said the rise of dollar-pegged stablecoins could force the ECB to rethink its monetary policy.
“If stablecoins in the US increase at the same pace as they have been increasing, they will become systemically relevant at a certain point,” Sleijpen told the Financial Times. He added that instability in these tokens could trigger mass sell-offs of underlying assets, mainly U.S. Treasuries.
Sleijpen also noted that while the ECB would likely deploy financial stability tools first, it is unclear whether interest rates would need to rise or fall. “I don’t know in which direction we would be going.”
U.S. rules fuel stablecoin surge
The growth in the stablecoin market accelerated after the GENIUS Act became law in the U.S., introducing federal oversight for stablecoin issuers. Following the legislation, the market for dollar-pegged tokens has surged 48% this year.
By contrast, euro-pegged stablecoins remain very small, with DeFiLlama reporting under $549 million in circulation—just 0.18% of the global market. Dollar-backed tokens dominate with 99.58% of the market.
The European Systemic Risk Board (ESRB), led by ECB President Christine Lagarde, has pointed out problems with stablecoins that are issued by multiple parties. The board warned that if a lot of people try to cash out at the same time, it could put pressure on European reserves and create risks from overseas.
They suggested banning setups where EU-regulated issuers keep reserves locally while non-EU partners manage the same tokens in other countries.
European banks plan euro-backed alternative
Nine major European banks are taking steps to reduce reliance on U.S. stablecoins. They have formed a consortium to launch a euro-backed stablecoin by the second half of 2026, targeting Markets in Crypto-Assets (MiCA) licensing in the Netherlands. The banks involved include ING, UniCredit, CaixaBank, Danske Bank, SEB, Raiffeisen Bank International, Banca Sella, KBC, and DekaBank.
“We believe this development requires an industry-wide approach, and it’s imperative that banks adopt the same standards,” said Floris Lugt, Digital Assets lead at ING.
The new stablecoin aims to provide fast, low-cost transactions and 24/7 cross-border settlement, offering a European alternative to the U.S.-dominated market.
Pierre Gramegna, Managing Director of the European Stability Mechanism, stressed the importance of independence: “Europe should not be dependent on U.S. dollar-denominated stablecoins, which are currently dominating markets.”
Eurogroup President Paschal Donohoe noted that the ECB’s digital euro project, planned for 2029, could further modernize payments. ECB Executive Board member Piero Cipollone described the recent agreement on customer holding limits as a “major breakthrough.”
Regulatory questions loom
The European Commission has proposed moving MiCA supervision from national authorities to the European Securities and Markets Authority (ESMA). Some industry groups have warned that the proposed changes could create legal uncertainty. French officials say that putting oversight under a central authority would close loopholes in the current system.
The European Parliament is expected to finalize the rules by May 2026. EU countries want to agree by the end of the year. They want to depend less on Visa and PayPal and cut down the role of U.S.-based stablecoins.
Stablecoins used to be a small part of digital finance, but now they are seen as a risk to global financial stability. European regulators and banks are moving fast to build a safe and steady digital currency system for Europe.
Also Read: BNY Moves to Be the ‘Plumber’ for the Trillion-Dollar Stablecoin Market
