Existing EU crypto rules address stablecoin risk, banking regulator says

Core Viewpoint - Europe's existing crypto regulations already include safeguards against risks associated with stablecoins, despite warnings from the European Central Bank (ECB) regarding potential threats to financial stability [1]. Group 1: Regulatory Concerns - The ECB and the European Systemic Risk Board (ESRB) have called for a ban on the "multi-issuance" model, which allows global stablecoin firms to treat EU-issued tokens as interchangeable with those issued outside the EU [2]. - The ESRB highlighted that a rush by non-EU holders to redeem EU-issued tokens could exacerbate financial instability within the bloc [2]. - The European Banking Authority (EBA) acknowledged the risks related to massive redemption requests but noted that the severity of these risks depends on the stablecoin's business model and scale [2][3]. Group 2: Safeguards and Supervision - The EBA emphasized the need for necessary safeguards following the Markets in Crypto-Assets (MiCA) regulation to mitigate risks associated with stablecoins [3]. - Issuers of stablecoins are required to maintain liquid assets to meet potential redemption requests, which should be effective on a global scale [4]. - The EBA will directly supervise significant stablecoins, while national regulators will oversee MiCA-licensed entities [5]. Group 3: Market Dynamics - Stablecoins currently represent a small segment of the financial system but are experiencing rapid growth, particularly driven by Tether based in El Salvador [5]. - Circle's USDC, the largest EU-regulated stablecoin utilizing the multi-issuance model, has $75 billion in tokens in circulation [5]. - Concerns have been raised by national regulators regarding the potential inability to transfer reserves from the U.S. to Europe to fulfill redemption requests [6].