MiCA Regulation May Be Creating a Stablecoin Vulnerability

European authorities’ push to regulate stablecoins under the Markets in Crypto‑Assets Regulation has brought order to a previously opaque market, but analysts warn it might also be sowing the seeds of a fresh risk for financial stability. The regulation mandates that issuers of e-money tokens and asset-referenced tokens must hold matching reserves, provide transparency on custody and investment of assets, and submit to governance and wind-down planning. These elements represent a significant step forward, yet major gaps remain when it comes to global stablecoins and the fungibility of tokens issued across jurisdictions.

Central to the concern is the rise of “multi-issuer” or cross-border stablecoin models that bypass the full intent of MiCA’s safeguards. According to a recent analysis, stablecoins issued partly in the EU and partly outside its borders retain the same token identity but split reserve backing across jurisdictions, leaving EU holders exposed to redemption claims backed by foreign reserves that may not meet EU standards or supervision. The European Central Bank has warned that in the event of a run, investors would gravitate to redeem tokens in the jurisdiction with the strongest protections — the EU — potentially overwhelming EU-held reserves despite the underlying token being issued elsewhere.

Another emerging trend is the increasing issuance of euro-pegged stablecoins under the MiCA umbrella, juxtaposed with heightened scrutiny of US dollar-pegged tokens. MiCA allows licensed stablecoin issuers to operate across all 27 member states via passporting rights, but places caps and tighter rules on dollar-pegged tokens and bans algorithmic or yield-bearing models. The push for euro-backed options aims to advance the euro’s international role and reduce dependency on non-EU stablecoins. However, some analysts argue this could fragment markets, increase complexity, and hamper widespread adoption. As one French asset-management executive stated: “If Europe disperses in creating 18 stablecoins which cannot be exchanged with each other, in five years everyone will use the products of a US issuer and Europe will have lost out again.”

MiCA also introduces rigorous operational requirements for issuers within the EU. These include governance arrangements, conflict-of-interest policies, complaint-handling mechanisms, sufficiency of own funds, custody rules for reserve assets and orderly wind-down plans. While these measures elevate standards, they increase the cost and complexity of issuing compliant tokens, potentially deterring smaller entrants and favouring larger established players, which could reduce competition and resilience.

From a monetary-policy and financial-stability perspective, a June 2025 study for the European Parliament found that adoption of foreign-denominated stablecoins in the euro-area is unlikely at scale without state backing, partly because the euro area has advanced digital payment systems and high trust in its currency. However, that very trust may mask vulnerability: if a large-scale redemption event occurred, the slices of reserve backing that fall under weaker jurisdictions could transmit risk into the banking system.

In addition, the regulatory focus on reserve-backing and redemption rights treats these features as synonymous with stability — yet some experts argue such an assumption is flawed. Reserve audits and proof-of-reserves may reduce opacity, but they do not guarantee the liquidity of the backing assets or the absence of correlated risks across issuers and jurisdictions. On-chain data shows that stablecoins already account for a majority of crypto transaction volume, underscoring how quickly a shock in this segment could ripple through broader markets.

Global regulatory competition is another under-acknowledged factor. In the US, the GENIUS Act proposes allowing banks and large financial institutions to issue stablecoins backed by liquid assets. The EU expects MiCA to set a worldwide standard, yet the diverging approaches risk creating regulatory arbitrage: stablecoin issuers may channel issuance through jurisdictions with lighter oversight or exploit the multi-issuer loophole to split liabilities.

Finally, the timeline is pivotal. MiCA has been applicable to stablecoins since June 2024, but the regulatory “grand-fathering” and transitional periods mean full implementation is still in progress. The institutional standoff between the European Commission and the ECB over multi-issuance structures has created uncertainty that could delay clarity for market participants and regulators alike.