MiCA Won’t Save Us from a Stablecoin Crisis. It Might be Building One

MiCA, the EU's regulatory framework for crypto, seeks to bring order to stablecoins but may unintentionally legitimize the risks associated with them. While designed to ensure issuers are stable through proof-of-reserves and capital rules, MiCA fails to address the systemic risks as stablecoins integrate into the financial system. As stablecoins gain trust as money, they pose threats to the traditional banking structure, potentially destabilizing monetary policy. The Bank of England warns of these risks and proposes limits on stablecoin holdings. Moreover, regulatory discrepancies may push issuers offshore, complicating oversight. MiCA, though a step forward, may merely propagate the fragility of financial systems by treating stablecoins as regular assets without adequate macro-prudential frameworks. This paradox indicates that while MiCA aims to normalize stablecoins, it also risks perpetuating a crisis rather than averting one.

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