Alexander Bechtel

By Alexander Bechtel and Anja von Rosenstiel

The USA has created a regulatory framework for stablecoins for the first time in order to secure the leading role of the US dollar. Despite MiCAR, the EU lacks the political will to support stablecoins.

If there was a word of the year in the market for digital assets, the choice in 2025 would probably be “stablecoins”. The blockchain-based tokens, whose value is pegged 1-to-1 to a fiat currency such as the euro or US dollar, have developed into one of the most dynamic segments of the financial market in recent months. The global stablecoin market capitalization has now exceeded the USD 250 billion mark – a growth of over 50% in the past twelve months, which has been accelerated not least by political decisions in the United States.

In June, US Treasury Secretary Scott Bessent emphasized that stablecoins are a strategic instrument to secure the international supremacy of the US dollar in the digital age. They also open up a new sales market for US government bonds, which serve as the preferred reserve asset for stablecoins. Last Friday, words were followed by deeds: US President Donald Trump signed a law passed by Congress that regulates the issuance of stablecoins nationwide for the first time. The name says it all: Guiding and Establishing National Innovation for U.S. Stablecoins, or Genius Act for short.

Genius Act and MiCAR: similar requirements in key areas

With the Genius Act, the USA is positioning itself as the second major economic area after the European Union to create a legal basis for stablecoins. The EU had already taken a pioneering role with the introduction of the Markets in Crypto-Assets Regulation (MiCAR) in January 2024.

Some key provisions of the Genius Act are similar to those of MiCAR: the payment of interest on stablecoins held is prohibited and issuers are obliged to maintain a reserve of liquid assets to ensure that payment tokens can be exchanged back into account-based fiat money at any time.

To apply for permission under the Genius Act, stablecoin issuers require either a license as a credit institution or as a Depository Trust Organization (depository without statutory deposit insurance). Companies outside the financial sector can also issue stablecoins. According to media reports, both Amazon and Walmart are considering this option. However, listed companies are subject to an issuance ban. They require an exemption from the so-called Stablecoin Review Board, which reports to the U.S. Treasury Department. This requirement could represent a considerable hurdle for many companies.

MiCAR with a stronger focus on consumer protection

MiCAR offers advantages in terms of consumer protection. While both regulatory regimes oblige issuers of payment tokens to enable exchange back into account-based fiat money, this obligation is enshrined in law under MiCAR and is therefore more binding. MiCAR also stipulates that the stablecoin reserve and the issuers’ own funds must be held separately from each other and by third parties in order to avoid conflicts of interest. The Genius Act allows generous exemptions here: Reserve and own funds may be commingled “for convenience”.

Also, issuers benefit from the less stringent requirements of the Genius Act. While MiCAR requires an capital ratio of at least two percent, the Genius Act dispenses with additional capital requirements. This makes the business model more profitable for issuers, but increases the risk of not having sufficient financial resources to meet redemption obligations in the event of a crisis.

Political strategies: US proactive, EU reactive

Far more serious than the technical differences between the two sets of regulations are the different political approaches of the US and the EU. The US has made a conscious decision to promote stablecoins as a strategic tool to strengthen the US dollar. Foreign issuers are encouraged to enter the US market through the recognition of their licenses. At the same time, Congress’s oppositional stance towards a central bank digital currency signals that the state will not compete with private solutions in the field of digital money in the future.

The EU, on the other hand, is acting more cautiously and appears to be driven by concerns that the increasing distribution of US stablecoins could jeopardize the sovereignty of the euro currency area. The European Central Bank (ECB) is attempting to counterbalance this by developing its own digital euro. However, the digital euro is not expected for at least a few years and only partially serves the same use cases as stablecoins.

What needs to be done now

The EU created regulatory clarity early on through MiCAR. Now it also needs the courage to use this head start and provide targeted support for regulated euro stablecoins. There are many ways to do this: A first step would be more differentiated communication that emphasizes not only the risks but also the opportunities of euro stablecoins and thus creates trust.

The ECB should also ensure that its digital euro complements and does not compete with euro stablecoins. Instead of distorting competition through state solutions, cooperation between the ECB and EU stablecoin issuers could create real added value: Direct access to central bank money for issuers, or a credit facility that provides liquidity against high-quality collateral in the event of a crisis, would strengthen user confidence and improve financial market stability.

And finally, the regulatory authorities should ensure that the good balance between innovation, consumer protection and financial market stability offered by the original MiCAR legislation is maintained in its implementation. What began as a lean and effective regime is increasingly developing into a labyrinth of delegated regulations, regulatory technical standards and official guidance on the application of the law. It is to be feared that innovation will be lost in this labyrinth.

One thing seems certain: Europe has the opportunity to create a real alternative to US stablecoins in the near future and strengthen the role of the euro in the global financial system. But it will not work without proactive support for euro stablecoins from politicians, regulators and central banks.

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This article was originally published in Frankfurter Allgemeine Zeitung (FAZ) in German. For the original version, click here.

Disclaimer: The contents of the article reflect the private opinions of the authors.