The European Central Bank (ECB) has indicated that risks associated with stablecoins in the euro area are limited, primarily due to low adoption rates and preventive regulations.

On Monday, the ECB released its financial stability review, focusing on the emerging market of stablecoins, digital assets tied to the value of fiat currencies or commodities.

The report, prepared by ECB financial stability analysts Senne Aerts, Claudia Lambert, and Elisa Reinhold, expressed concerns regarding stablecoin use beyond cryptocurrency trading and affirmed their low risks to financial stability in the euro area.

“Currently, financial stability risks stemming from stablecoins are limited within the euro area, but the rapid growth justifies close monitoring, while risks stemming from cross-border regulatory arbitrage should be resolved,” the report stated.

Crypto trading remains a key use case for stablecoins

“At present, crypto trading constitutes by far the most important use case for stablecoins,” the authors remarked, noting that other applications like cross-border payments only play a minor role.
The report highlighted a study from July by the International Monetary Fund, indicating a significant portion of stablecoin transactions are cross-border, although there is little evidence linking these transactions to remittances.
It also drew attention to limited use of stablecoins in retail transactions, with Visa’s estimates suggesting that approximately 0.5% of stablecoin volumes come from retail-sized transfers (under $250).

The ECB analysts concluded, “The use of stablecoins seems primarily driven by their role within the cryptocurrency ecosystem, and it remains uncertain whether they will gain traction in other applications.”

US Dollar Stablecoins Less Interconnected with Euro Markets
The report mentioned the stablecoin market does not pose any immediate financial risks for Europe since stablecoins are not largely utilized for transactions involving tangible assets in the euro area.
Although US dollar-pegged stablecoins, such as Tether’s USDt and Circle’s USDC, dominate the market, accounting for around 84%, their relationships with European financial markets are limited.

“To mitigate risks posed by cross-border regulatory arbitrage and diminish spillover risks from inadequately regulated jurisdictions, it is vital that regulatory frameworks are more aligned globally,” the authors remarked.

The latest ECB assessment signifies a major evolution in the EU’s stablecoin strategy, indicating a potential path towards a digital euro pilot projected for 2027, with a possible official launch in 2029.