Stablecoin Risks Assessed by Financial Stability Experts
Financial stability experts at the European Central Bank (ECB) have concluded that stablecoin-related risks within the euro area are currently limited. This assessment is attributed to both low adoption rates and the presence of preventative regulatory measures.
The ECB published its financial stability review pre-release, which focused on the expanding market of stablecoins. Stablecoins are digital assets designed to maintain a stable value, typically pegged to a fiat currency or a commodity.
The report, authored by ECB financial stability experts Senne Aerts, Claudia Lambert, and Elisa Reinhold, examined the practical applications of stablecoins beyond cryptocurrency trading. It highlighted that the risks these assets pose to financial stability in the euro area are currently minimal.
"Currently, financial stability risks stemming from stablecoins are limited within the euro area, but the rapid growth justifies close monitoring, while risks stemming from cross-border regulatory arbitrage should be resolved," the report states.
Crypto Trading Dominates Stablecoin Use Cases
The report identified crypto trading as the predominant use case for stablecoins. Other potential applications, such as cross-border payments, are described as playing only a minor role at present.
While acknowledging that a significant portion of stablecoin flows are international, as noted in a study by the International Monetary Fund, the ECB report found no evidence that these flows are systematically linked to remittances.
Furthermore, the use of stablecoins in retail transactions appears to be limited. Data from Visa suggests that only approximately 0.5% of stablecoin volumes represent organic retail-sized transfers, defined as those under $250.
The ECB staff concluded that stablecoin adoption seems to be primarily concentrated within the crypto-asset ecosystem, and it remains to be seen whether they will gain wider traction in other use cases.
Limited Interconnection of US Dollar Stablecoins with Euro Markets
The report emphasizes that stablecoins are not widely utilized for transactions involving real-world assets, particularly within the euro area. Consequently, the stablecoin market does not present immediate financial stability risks for Europe.
Despite US dollar-pegged stablecoins, such as Tether's USDt (USDT) and Circle's USDC (USDC), dominating the market with an 84% share, their interconnections with euro area financial markets are described as limited.
“To mitigate risks posed by cross-border regulatory arbitrage and diminish spillover risks from inadequately regulated jurisdictions, it is vital that regulatory frameworks are further aligned at a global level.”
The European Union's crypto regulatory framework, the Markets in Crypto-Assets Regulation (MiCA), is expected to mitigate potential risks, even if stablecoin usage and interconnections with the euro area were to increase. Specific measures within MiCA, such as the prohibition of interest payments on stablecoin holdings by both issuers and crypto asset service providers, are highlighted as key to restricting stablecoin-related risks.
The authors noted that similar bans have been advocated for in the US by banking groups, with federal regulators anticipated to release final regulations for the GENIUS Act in 2026 or 2027.
The ECB's latest report signals a shift in the EU's approach to stablecoins. Previous concerns raised by ECB executive board members, such as Piero Cipollone, about US stablecoins posing a threat to Europe's payment sovereignty, have strengthened the case for a digital euro.
With the ECB targeting a digital euro pilot in 2027 and potential issuance in 2029, the institution is actively progressing while continuing to monitor and address stablecoin-related risks.