The European Union is preparing to ease restrictions and allow foreign, US dollar-backed stablecoins to enter European markets more freely, signaling a major shift influenced by recent US stablecoin legislation. This move comes despite strong opposition from the European Central Bank (ECB) and its president, Christine Lagarde, who have raised concerns about the risks such stablecoins pose to monetary policy and financial stability.
According to reports and analysis from Moody's, the EU is expected to issue formal guidance treating stablecoins issued outside the bloc as interchangeable with their European-branded counterparts. Previously, EU regulations required stablecoin issuers operating within Europe to keep most reserves in European banks, restricting the presence of foreign stablecoins backed by currencies like the US dollar. The new approach would override these limitations, allowing increased foreign stablecoin activity in Europe.
This development follows the US Senate's passage of the GENIUS Act, a legislative framework for stablecoin issuance and trading, which Moody's believes is exerting international pressure on other markets to harmonize regulations. Should the EU amend its stablecoin rules accordingly, it could help Europe remain competitive in the global digital asset economy, avoiding becoming a mere "flyover zone" between the US and Asia.
Separately, new EU regulations will impose strict reserve requirements mandating that stablecoins hold assets in EU banks and subject large issuers to rigorous supervision and trading caps. While these measures aim to ensure financial stability and mitigate risks highlighted by the ECB, they may affect major stablecoins such as USDT and USDC, with potential downstream effects on DeFi protocols reliant on stablecoin liquidity. The regulations could redirect market flows towards regulated or local alternatives and increase institutional participation within Europe.
Overall, the EU's evolving stablecoin policies reflect broader trends in global regulatory alignment sparked by the US. The outcomes may reshape the European crypto landscape, impacting liquidity, compliance practices, and the interplay between stablecoins backed by different fiat currencies.