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Stablecoins in the European Legal Order: Regulation, Systemic Risk and the Transformation of Financial Infrastructure (2025 Update)

Stablecoins in the European Legal Order: Regulation, Systemic Risk and the Transformation of Financial Infrastructure (2025 Update)

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Stablecoins have evolved from an experimental crypto-instrument into a potential pillar of Europe’s emerging digital financial architecture. With the EU’s Markets in Crypto-Assets Regulation („MiCA“) now fully applicable to stablecoins, and the European Central Bank („ECB“) warning of possible systemic implications (ECB, 2025: assessment of stablecoins as sources of funding strain and market-liquidity vulnerabilities (ECB Report), 2025 marks a turning point: stablecoins are no longer peripheral to financial regulation. They sit at the intersection of technology, monetary policy and financial stability, and increasingly influence how financial value is stored, transferred and regulated.
 
This article examines the regulatory framework, the ECB’s risk assessment, and the technological shifts that are pushing stablecoins into the centre of Europe’s future financial system.
1. MiCA and the Emergence of a Regulated Category of Digital Money
MiCA establishes a comprehensive regulatory framework for crypto-assets, with stablecoins at its core. It introduces a legally binding taxonomy that distinguishes between Asset-Referenced Tokens (ARTs) and E-Money Tokens (EMTs), each subject to distinct authorisation, governance and oversight regimes.
 
Issuers of ARTs and EMTs must be authorised, maintain transparent whitepapers, implement governance and risk-management systems, and hold reserves of sufficient quality and liquidity. These reserves must be structured in a way intended to achieve insolvency remoteness, even though the practical effectiveness of such structures will ultimately depend on national insolvency regimes and supervisory practice.
 
MiCA’s legal significance extends beyond consumer protection. By regulating stablecoins with a rigor comparable to established financial instruments, the EU effectively places them within the broader monetary and payments ecosystem. This positions stablecoins as emerging digital money instruments rather than speculative crypto-assets – a conceptual shift with far-reaching implications for financial regulation, payment systems and monetary sovereignty.
2. The ECB’s Assessment: Stablecoins as potential sources of financial instability

The ECB’s 2025 Financial Stability Review, widely reported by Reuters, introduces a sober assessment of stablecoins’ systemic potential. The ECB notes that, although stablecoin use in the Eurozone remains modest at present, their rapid global expansion and market structure create significant vulnerabilities that could materialise as the market grows.

2.1. Deposit migration and bank funding pressure

Stablecoins offer an alternative to traditional bank deposits. If households or corporates increasingly substitute deposits with fiat-backed EMTs, the result could be a gradual erosion of the deposit base – a development the ECB identifies as a potential stress factor for the Eurozone’s banking system. Deposits represent a stable and inexpensive source of funding; replacing them with volatile wholesale financing would expose banks to higher funding costs and liquidity risks (see ECB Report).

2.2. Redemption Dynamics and Fire-Sale Risks

Stablecoins typically maintain reserves in short-term sovereign securities or money-market instruments. A sudden loss of confidence could trigger large-scale redemptions, compelling issuers to rapidly unwind reserve portfolios. The ECB warns that such fire-sale dynamics could spill over into sovereign bond markets and short-term funding markets, magnifying market stress and causing cross-border contagion.

2.3. Interconnectedness and Spillover Channels
Even if stablecoin usage in the Eurozone remains comparatively small, the ECB stresses that global interconnectedness – particularly the reliance on non-EU reserve assets and international trading platforms – increases the likelihood that turbulence outside the EU could have direct or indirect effects on European markets.
 
The ECB’s core message is therefore twofold: stablecoins are not yet systemically relevant in the Eurozone, but their structural design features make them potential amplifiers of market stress, necessitating careful regulatory and supervisory attention.
3. Technological Transformation: Tokenisation, DLT and the Changing Architecture of Finance
Parallel to regulatory developments, technological innovation continues at pace. Tokenisation of financial instruments and real-world assets – using distributed ledger technology (DLT) – is becoming a central strategic priority for banks, asset managers and market infrastructures.
 
Tokenisation enables near-instant settlement, programmability and automated compliance. As these systems mature, they require reliable, transferable on-chain settlement assets. Stablecoins that comply with MiCA’s governance and reserve requirements are emerging as natural candidates for these roles.
 
This trend has profound implications:
  • It accelerates the convergence between traditional financial infrastructures and digital ledgers.
  • It shifts questions of legal finality, governance, liability and insolvency into the DLT domain.
  • It positions regulated stablecoins as potential “bridging assets” between traditional and digital settlement systems.
Whether in capital markets, payments experimentation or pilot projects in infrastructure and alternative asset finance, stablecoins increasingly function as the digital liquidity layer for tokenised markets. This development prompts new legal questions: How is settlement finality ensured on-chain? How are smart contracts integrated into legal obligations? What happens in case of technical malfunction or insolvency?
4. Implications for Banks, Stablecoin Issuers and FinTechs
For banks, the ECB’s analysis requires a reassessment of liquidity and funding strategies. Deposits may no longer be as stable over the long term, and supervisors may expect banks to model deposit-migration scenarios and incorporate stablecoins into liquidity risk frameworks.
 
For stablecoin issuers, MiCA imposes demanding requirements. Reserve structures, redemption mechanics, governance bodies and transparency mechanisms must be legally robust and operationally resilient. Insolvency treatment and segregation of client assets must be carefully designed to meet both regulatory expectations and market confidence.
 
For FinTechs and digital-asset service providers, MiCA, AML rules and cybersecurity standards create a harmonised yet stringent compliance environment. Tokenisation initiatives will need to integrate legal enforceability, cross-border regulatory obligations and alignment with financial-market rules.
 
For policymakers, the ECB’s findings suggest that MiCA may be only the first step. As stablecoins grow, questions of financial stability, monetary policy interaction, deposit protection and cross-border supervision will require additional regulatory and institutional responses.
Conclusion: Stablecoins at the Intersection of Innovation and Systemic Responsibility
Stablecoins are no longer a marginal crypto phenomenon; they are becoming a structural component of Europe’s digital financial landscape. MiCA provides the regulatory foundation, while the ECB highlights the systemic risks associated with their wider adoption. Tokenisation and DLT, meanwhile, drive functional integration into trading, settlement and payment systems.
 
The legal challenges are therefore not purely technical. They concern the very architecture of financial markets, the interaction between private and public forms of money, and the balance between innovation and stability.
 
For legal practitioners, the task is to interpret and shape this emerging ecosystem: ensuring that stablecoins can fulfil their innovative potential without compromising the integrity and resilience of Europe’s financial system. The transformation is underway – and its legal contours are only beginning to emerge.
KAI.SHFINAL
Kai Scholz
Partner | Head of Legal and Operations Germany, Switzerland, Azerbaijan and Holland
  • Barckhausstraße 1
    60325 Frankfurt
    Germany
  • (+49) 69 967 58 891

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