This is a segment from the 0xResearch newsletter. To read full editions, subscribe . As of Dec. 30, 2024, MiCA officially went into force, marking a turning point for the European Union’s approach to crypto assets. Despite the euro’s prominence in TradFi — accounting for 20-30% of global FX reserves, SWIFT transactions and trade flows — it represents less than 0.5% of global stablecoin circulation. Patrick Hansen, an industry expert and Circle’s EU policy lead, expects this to change. He emphasized MiCA’s significance as “the world’s most comprehensive regulatory framework for crypto assets.” “The EU has a unique opportunity to position itself as a global hub for crypto innovation,” Hansen told Blockworks. Why the euro lags in stablecoins Hansen attributes the disparity in onchain euros compared to dollars to several factors: 1. Dollar-dominated liquidity:”Network effects created around US dollar stablecoins were just impossible to catch up for euro stablecoins. European users interacting with global crypto markets choose whatever is cheapest and most liquid.” 2. Historical negative interest rates:”For a long time in the euro area, negative interest rates put the stablecoin business model into question.” 3. Regulatory uncertainty: Until MiCA, euro stablecoins lacked a dedicated regulatory framework, deterring institutional players . MiCA addresses this third point by creating a clear framework for stablecoins. Hansen notes that the entry into force has already attracted institutional interest, with major European banks and other players exploring or launching euro stablecoin products. He highlights Circle’s launch of EURC under MiCA-compliant conditions, with reserves fully managed by a French-regulated entity, noting that “we’ve seen 60-70% growth in EURC supply, driven by launches on multiple blockchains.” MiCA mandates stablecoin issuers hold reserves proportional to tokens circulating in the EU. Circle uses a “dynamic rebalancing” model to comply, Hansen explained. “If we see the number of USDC held in the EU increase, we increase the European reserves accordingly,” he said. Emerging use cases for onchain euros Hansen sees two main drivers for euro stablecoin adoption: regulated crypto capital markets and stablecoins’ real-world applications. “Only stablecoins authorized under EU rules will ultimately be used as trading pairs in regulated crypto markets,” Hansen said. “I’d not be surprised to see significant growth in this area.” This change has driven crypto exchanges to delist USDT as trading pairs for customers in the EU. Corporate use cases, such as cross-border payments and tokenized financial instruments, are gaining traction, according to Hansen.”Corporate suppliers in the euro area will inherently demand euro-denominated assets for risk management,” he said. However, while MiCA offers a solid foundation, Hansen cautions that it’s only “version 1.0” and must evolve to address emerging challenges. He also warns that the EU’s Travel Rule (TFR), which requires additional user verification for certain transactions, could create friction — particularly for self-custody wallets. Ultimately, MiCA’s success will depend on whether it can balance fostering innovation with protecting consumers and creating a competitive local market. As Hansen put it, “only time (and the market) will tell whether MiCA can achieve its goals.” Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter . Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter . Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more. The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.
