Key Points
- The EU’s top financial risk watchdog is warning about the dangers of certain stablecoins.
- The concern is about “multi-issuer” stablecoins that are partly issued outside the EU.
- Regulators fear a “run” on these assets could create a liquidity crisis in Europe.
- The watchdog is calling for “urgent” new safeguards to close this regulatory loophole.
The European Union’s top financial risk watchdog is sounding the alarm about stablecoins that are partly issued outside the European Union, warning that they could pose a serious threat to financial stability. The European Systemic Risk Board (ESRB) is calling for “urgent” new safeguards to close a regulatory loophole.
The EU has some of the world’s strictest rules for crypto assets, but policymakers are worried about a specific type of setup: “multi-issuer” stablecoins. This is where a stablecoin is jointly issued by both an EU-based company and a non-EU company.
The problem is that the non-EU issuer isn’t subject to the same tough regulations, creating an uneven playing field and a potential backdoor for financial risk.
The biggest fear is a “run” on the stablecoin. If investors panic and rush to cash out, they will almost certainly choose to redeem their tokens in the EU, where the rules are strongest and their money is safest. This could create a massive, concentrated demand for cash in Europe that the reserves held by the EU-based issuer might not be able to cover.
This scenario could lead to a major liquidity squeeze, potentially forcing the European Central Bank to step in to prevent a wider crisis. The ESRB, headed by ECB President Christine Lagarde, states that this vulnerability requires an “urgent policy response.” Lagarde has argued that all companies issuing stablecoins in the EU, regardless of their location, should be held to the same high standards.
