EU Risk Watchdog Resonates with Stablecoin Safeguards Alarm

The European Union’s best financial risk watchdog calls for urgent policy measures to address vulnerabilities stablecoins It spans blocks and other jurisdictions and issues a warning of potential systemic shock if safeguards are not enhanced.

In a statement, the European Systematic Risk Committee (ESRB), chaired by President Christine Lagarde of the European Central Bank (ECB), warned that “third country multi-iser schemes with alternative stability issued both in the EU and outside — incorporate vulnerabilities that require urgent policy responses.”

Designed to maintain stable value by pinning it to assets such as currency and baskets of reserves, Stablecoins has grown to over $300 billion in markets, according to data from Defillama. The majority are dollar-based and are led by Tether’s USDT, which orders more than 58.53% in the sector.

In countless forecast markets released DecryptionUsers, parent company Dastan, are hoping for even faster growth in the sector, increasing the 72% chance of Stablecoin’s market capitalization, exceeding $360 billion by February.

EU and Stablecoins

The EU has already established a strict cryptographic regulation regime, requiring that stubcoins issued within the borders be fully supported by reserves, and some countries want to tighten them even further.

However, the ESRB and ECB warn that multi-iser schemes involving non-EU players will tilt the arena. Investors facing turbulence may prefer redemption in the EU, where protections will be more severe, but reserves within the block may not be sufficient and may force the ECB to intervene.

This warning reflects wider global unrest over the sector from traditional finance. In June, the bank flagged financial sovereignty and risks to capital flight from emerging markets, but pointed to repeated breakdowns in Stablecoins’ ability to hold pegs.

Other jurisdictions pursue different routes. In the US, President Donald Trump signed the Genius Act in July, establishing the first formal framework for the issuance of Stablecoin. The issuer prohibits paying interest, but the exchange freely offers yields, sparking heated debate between flights of mass deposits and banks that dismiss the threat as crypto groups exaggerated.

In Hong Kong, multiple regulatory warnings continue following the law that came into effect on August 1. Authorities noted that the sharp, speculation-driven market, tied to rumors of Stablecoin’s license, warned investors from excessive risk. Last month they reiterated that the original sturdy, silly idiots were not approved in the city.

Last month, the Bank of England proposed a ridiculous amount of caps that individuals and businesses can hold in the UK. Individuals are limited to £10,000 to £20,000 ($13,600-$27,200) and businesses are limited to £10 million ($13.6 million). The proposal faced a widespread push from crypto advocacy groups and businesses as Coinbase’s vice president of international policy rejected it, saying it was “bad for UK savings, bad for cities, bad for Sterling.”