Stablecoins: From Niche Product to Power Instrument

Few topics currently capture the attention of the financial sector as strongly as stablecoins. Only recently, the United States introduced the GENIUS Act, creating a dedicated legal framework for their issuance. In Europe, by contrast, a binding regime for so-called e-money tokens has already been in place for more than a year through the EU Regulation on Markets in Crypto-Assets (MiCA).

But what makes stablecoins so compelling? At their core, they are digital instruments pegged to a fiat currency. Buyers obtain a right to redeem them at par value. Unlike volatile crypto-assets such as Bitcoin, stablecoins are not designed for speculation but for stability. In particular, they hold promise for international payments, offering speed, cost-efficiency, and reliability. Transactions are carried out via blockchain, in principle borderless and near-instant.

Today, the market is dominated by the U.S. dollar: more than 95% of all stablecoin volume is processed in USD-backed tokens such as USDT or USDC, with even PayPal participating through its PYUSD. The euro, however, is not standing still. As recently announced, a consortium of nine European banks, including Raiffeisen Bank International, plans to launch a euro-denominated stablecoin later this year.

The strong interest in stablecoins is particularly evident from the perspective of issuers and governments. Issuers receive customer deposits in exchange for their tokens – and are allowed to invest those funds. In Europe, the European Banking Authority (EBA) determines the scope of permitted investments and has already published two draft regulatory technical standards on the matter (EBA/RTS/2024/10 and /11). At their core, the rules envisage investments in liquid, low-risk assets.

At the same time, issuers only owe redemption at par value, but no interest. MiCA explicitly prohibits the payment of interest under Article 50 MiCA. In practice, this means issuers manage a pool of capital that can be invested profitably, and without incurring refinancing costs. Whether placed in safe government bonds or in higher-yielding instruments, the profits flow directly to the issuer. Stablecoins, in effect, create a source of “free capital” that can be deployed flexibly.

This model is also attractive to states. After all, they ultimately decide what issuers may invest in. With the GENIUS Act, the U.S. may indeed have achieved a genuine masterstroke: only stablecoins investing customer funds in U.S. Treasuries will be authorized. The result is (potentially) a new, reliable source of demand for financing public debt. Europe, by contrast, has so far not taken advantage of this potential.

Conclusion: Stablecoins are far more than a technological experiment. They align entrepreneurial interests in virtually cost-free liquidity with governmental interests in directed capital allocation. With MiCA in Europe and the GENIUS Act in the U.S., the regulatory framework has been established. The rush toward stablecoins is now a reflection of global competition over the currency of the future: stable, digital, and geopolitically highly significant.