Stablecoin Adoption and Risks in the Eurozone

The European Central Bank (ECB) has downplayed concerns over stablecoin-related threats to Europe’s financial system, stating that their limited adoption outside of crypto markets keeps risks contained for now. An ECB report found that stablecoin adoption in the eurozone remains low and is mostly tied to crypto trading activities.

In a pre-release of its latest financial stability review, ECB analysts Senne Aerts, Claudia Lambert, and Elisa Reinhold explained that stablecoins – digital tokens pegged to fiat currencies or commodities – are still primarily used within the crypto ecosystem rather than the broader economy.

Crypto Trading as the Main Driver of Stablecoin Demand

The report identifies crypto trading as the dominant use case for stablecoins, despite years of claims that they could revolutionize payments. According to the ECB, other applications, including cross-border payments, have seen minimal traction.

The bank cited IMF research showing that while many stablecoin flows move across borders, there is no evidence that these transactions are meaningfully tied to remittances. Retail adoption is even smaller; Visa estimates that only around 0.5% of stablecoin activity involves small organic payments under $250.

Global Stablecoin Dominance and EU Exposure

Although dollar-denominated stablecoins such as Tether’s USDT and Circle’s USDC control about 84% of the global market, their links to the eurozone financial system remain “limited,” the report noted. This lack of integration reduces the likelihood of spillover risks, even as the market continues expanding.

The ECB also highlighted Europe’s regulatory advantage. MiCA, the EU’s flagship crypto regulation, includes measures like banning interest payments on stablecoin holdings, which the bank says will help curb risky behavior and prevent cross-border regulatory arbitrage.

Policy Shift and the Digital Euro

The report marks a shift in tone from earlier ECB comments suggesting that US stablecoins threatened Europe’s monetary sovereignty. Senior officials, including executive board member Piero Cipollone, had previously argued that dollar-backed tokens could undermine EU payment systems.

Now, the ECB appears more confident in its regulatory framework while pushing ahead with its own central bank digital currency (CBDC). The digital euro is expected to begin pilot tests in 2027, with the first possible issuance slated for 2029.