ECB Raises Concerns Over $300 Billion Stablecoin Market and Its Potential Risks

In a recent statement, Dutch central bank governor Olaf Sleijpen indicated that a potential run on stablecoins might prompt the European Central Bank (ECB) to rethink its monetary policy strategy. He expressed concerns about the rapid rise of dollar-pegged digital tokens, which are increasingly becoming significant players in the financial system.

Key Takeaways

Potential Risks: The rapid growth of dollar-pegged stablecoins poses risks to European financial stability and could impact ECB's monetary policy.
Regulatory Response: The U.S.'s new GENIUS Act and Europe’s concerns about dollar stablecoins highlight the need for robust regulatory frameworks.
Euro-Stablecoin Initiative: A consortium of nine major European banks aims to launch a euro-backed stablecoin to create a competitive alternative to U.S. dominance.
Digital Euro Development: The ECB is actively working on a digital euro, projected to improve regional payment systems and reduce reliance on dollar-denominated tokens.

ECB Warns $300B Stablecoin Market Could Trigger Global Financial Crisis

The current $300 billion stablecoin market has surged by over 48% this year, partly driven by new U.S. regulations implemented under President Trump. This growth poses direct threats to European financial stability, economic growth, and inflation control, potentially necessitating intervention by the ECB.

Sleijpen elaborated in an interview with the Financial Times, stating, “If stablecoins in the US increase at the same pace as they have been increasing, they will become systemically relevant at a certain point.” He cautioned that instability in stablecoins could lead to large-scale sell-offs of underlying assets, particularly U.S. Treasuries.

While the central bank is likely to first utilize financial stability tools, Sleijpen admitted uncertainty about the direction of future interest rates, saying, “I don’t know in which direction we would be going.“

ECB Warns $300B Stablecoin Market Could Trigger Global Financial Crisis

Dollar-Backed Tokens and Risks to European Monetary Authority

The rapid expansion of dollar-backed stablecoins has raised alarms across European institutions. Officials warn that the European Union may be facing conditions akin to emerging markets, where heavy reliance on foreign currencies can compromise local monetary policies.

A senior official at the ECB pointed out this summer that the dominance of dollar stablecoins could limit policymakers in Europe from effectively setting interest rates or managing the money supply. Additionally, Nobel laureate economist Jean Tirole warned that failures of these tokens could compel governments to undertake costly bailouts.

Concerns have intensified since the U.S. government introduced the GENIUS Act in July, which established federal oversight for stablecoin issuers, thereby accelerating expansion within the market.

According to DefiLama, euro-backed stablecoins remain relatively small, with less than $549 million in circulation—just 0.18% of the global market. In stark contrast, dollar tokens command a massive 99.58% dominance.

ECB Warns $300B Stablecoin Market Could Trigger Global Financial Crisis

The European Systemic Risk Board (ESRB), led by ECB President Christine Lagarde, heightened its warnings in October. The board identified "built-in vulnerabilities" within multi-issuer stablecoin frameworks, endorsing a recommendation to prohibit system structures where EU-regulated issuers manage local reserves, while non-EU partners oversee identical tokens from abroad.

The ESRB cautioned that significant stress-prompted redemptions could overwhelm local reserves and expose the EU to liabilities held offshore.

European Banking Consortium's Counter Initiative

In response to their concerns about stablecoins, nine prominent European banks have formed a consortium to develop a euro-backed stablecoin, which they plan to launch in the second half of 2026. This initiative will aim for compliance with MiCA licensing under Dutch regulations.

The participating banks—ING, UniCredit, CaixaBank, Danske Bank, SEB, Raiffeisen Bank International, Banca Sella, KBC, and DekaBank—have established a joint entity for the project, intending to create a viable European alternative to the U.S.-dominated market.

Floris Lugt, Digital Assets lead at ING, emphasized the necessity for a unified industry approach, highlighting the importance of adhering to the same standards.

The proposed stablecoin aims to facilitate quick transactions at lower costs and ensure 24/7 cross-border settlement capabilities.

In remarks made during an October hearing, European Stability Mechanism Managing Director Pierre Gramegna reiterated this commitment, asserting, “Europe should not be dependent on U.S. dollar-denominated stablecoins, which currently hold significant market power.”

Eurogroup President Paschal Donohoe endorsed this perspective, noting that the ECB’s digital euro project, expected by 2029, could further enhance regional payment systems.

The development of the digital euro is gaining momentum, with ECB Executive Board member Piero Cipollone highlighting ongoing consensus among finance ministers about customer holding limits, which he described as a “major breakthrough.”

The European Parliament is anticipated to finalize its legislative framework by May 2026, while member states aim for consensus by year-end, striving to minimize reliance on entities like Visa and PayPal and to limit dollar-stablecoin prevalence.

Nevertheless, as Europe prepares for regulatory advancements, the European Commission is now suggesting transferring MiCA supervision from national authorities to the European Securities and Markets Authority. Some industry commentators warn that this shift might create legal uncertainties, although French representatives argue centralized oversight could eliminate existing regulatory gaps.