Europe's MiCA Rethink Puts Stablecoin Rules in Play

The European Union is heading into a regulatory review that could reshape how stablecoins work in the bloc. MiCA, the Markets in Crypto Assets framework, became law three years ago. Now the European Commission is preparing what insiders call MiCA 2.0, an update that touches reserve requirements, multi-issuance tokens, and who holds supervisory power.

The dollar's grip on stablecoin markets is the backdrop. Dollar-pegged tokens account for $310 billion of the $311 billion total, according to DeFiLlama. Non-dollar stablecoins do not even reach 0.5%. That concentration has the European Central Bank worried about losing control over monetary conditions in the 21-nation eurozone. The ECB's preferred answer remains a central bank digital currency, not euro stablecoins. Still, some policymakers have softened their stance.

John Orchard, chairman of the Digital Monetary Institute at OMFIF, an independent research group for central banking and economic policy, said ECB officials are not united. "If you listen to European Central Bank officials, you'll notice their opinions change depending on the individual," Orchard said in an interview. "They are now willing to tolerate stablecoins on bank balance sheets and perhaps as a remittance tool. They don't want stablecoins for wholesale settlement, which the U.S. is prepared to experiment with."

The U.S. passed the GENIUS Act last year. It defines payment stablecoins and assigns the Federal Reserve and the Office of the Comptroller of the Currency tasks overseeing issuance. One major difference between the two regimes is where reserves sit. Under GENIUS, issuers can hold reserves in U.S. government debt. MiCA requires deposits back into the banking system. That distinction matters for yield and for systemic risk.

A group of banks and financial institutions called Qivalis is trying to build a euro-denominated stablecoin. Because its members are banks, they can handle reserve requirements internally. The project also aligns with the EU's strategic autonomy agenda, a push to reduce dollar dependence. The eurozone lacks a unified treasury bond market like the U.S. has. Orchard said the European Commission is "toying with the idea of reviewing the reserve requirements so that a GENIUS-Act-like model could exist, where the stablecoin operator might buy money market instruments from European governments instead of routing the money back into the banking system."

Multi-issuance stablecoins present another flashpoint. Circle Internet's USDC can be minted by several distinct legal entities across different jurisdictions and presented as a single fungible token. MiCA originally supported that model. During implementation, the ECB and other stakeholders pushed back, citing risks.

Catarina Veloso, director of regulatory and compliance at Notabene, a protocol designed to bring crypto transactions into the everyday economy, said the real value of stablecoins is their global nature. Geographic limits would force Circle Europe, now licensed under MiCA, to build a fragmented version of USDC. "One of stablecoin's main value-adds is that it's not a payment system built within a specific jurisdiction," Veloso said in an interview. "That value is diluted by the fact it's now being captured by regulatory frameworks that do exist within borders."

The banking lobby in both the U.S. and Europe has fought to prevent stablecoins from paying yield, citing the risk of deposit flight – the transfer of funds from bank accounts to blockchain wallets. The EU Commission wants to revisit that question, though Orchard said a change is unlikely.

Another area of debate is whether to centralize MiCA supervision under the European Securities and Markets Authority (ESMA). That would eliminate discrepancies between national implementations. It could also create a bureaucracy that stifles the nascent industry. Some inside the European Commission argue centralization is premature.

"At the moment, the supervision of MiCA is distributed through the National Competent Authorities – Bafin, and so on," Orchard said. "If that is to be changed, the regulation requires updating. Given the necessity to, they decided to take the opportunity to consider other areas that could be improved, including the distribution of competence between MiCA and MiFID."

Denzel Walters, head of Luxembourg at crypto trading firm B2C2, said his firm chose Luxembourg because of its expertise in cross-border distribution. "From a business perspective, there are a number of reasons why we chose to set up our European presence from Luxembourg," Walters said in an interview. "Whether it's the national or the European regulator, you would like to see those advantages continue to persist. Surely the outcome is not the regulation itself. The outcome has to be a business's ability to grow."

The MiCA 2.0 review is still in its early stages. The Commission has not set a formal timeline for the updated text. The direction of travel on reserves, multi-issuance, and supervision will determine whether Europe becomes a viable home for stablecoin innovation or cedes ground to the U.S. and dollar-denominated tokens.

For CRCL, the stakes are high. Circle's USDC is the largest multi-issuance stablecoin. Any change to how MiCA treats that model could directly affect its European operations.