EU Shakes Up Crypto: Same-Brand Stablecoins Now Treated as Interchangeable Tokens

The European Union just dropped a regulatory bombshell—and stablecoin issuers are scrambling. Starting today, the bloc treats all same-brand stablecoins as fungible assets, collapsing liquidity pools and rewriting arbitrage playbooks overnight.

No more gaming the system with 'versioned' USDT clones. The EU's move effectively forces Tether, Circle, and others into a winner-takes-all liquidity battle. Market makers are already repricing spreads as 90% of eurozone stablecoin volume gets funneled into single-brand liquidity pools.

Behind the policy shift? Brussels bureaucrats finally noticed what traders knew for years—stablecoins from the same issuer were always interchangeable, just with extra steps to justify banking fees. One ECB insider quipped: 'If banks can treat all dollar bills as equal, why shouldn’t crypto?'

The real winner? Exchanges saving millions in cross-chain bridging costs. The loser? Every fintech that built a 'stablecoin aggregation' business model. As usual in crypto regulation, the middlemen get crushed while whales adapt.

• EU to treat same-brand stablecoins as interchangeable tokens
• ECB fears EU reserves could fund non-EU redemption requests
• Stablecoin issuers must match EU reserves with EU token volume

The European Commission is set to release new instructions on stablecoin regulation in the next few days. The MOVE comes after increasing demand for clear frameworks on how cross-border stable coins operate across the EU. The Commission will continue with formal clarification despite opposition from the European Central Bank (ECB).

EU to Treat Same Brand Stablecoins As Interchangeable

The new rules will outline that stablecoins issued outside the EU can be treated as equivalent to those issued within the EU. This will apply when both tokens come from the same company that holds an EU license. This seeks to tackle confusion of token fungibility under the current Markets in Crypto-Assets (MiCA) framework.

Source: X

MiCA requires stable coin issuers to obtain the authorization and maintain reserves in EU-based banks. The reserves back customer redemptions as well as compliance with regulations. However, fungibility of the same tokens across jurisdictions had remained unclear.

In April 2024, France banking regulator issued a query to seek clarification on fungibility of dual-issued stablecoins. The Commission’s new guidance will respond to this particular issue, providing a unified interpretation. The framework will influence regulatory practices as well as issuer obligations.

Also Read | Ripple Confirms Euro-Backed Stablecoin Launch on XRP Ledger

EU Raises Concerns Over Shared Reserve Pools

The ECB expressed concerns that shared reserve pools may result in abuse in times of financial stress. It cautioned that EU-based reserves could be used in redemption requests from non-EU holders. This WOULD undermine the financial stability control in the EU.

However, the Commission believes that properly collateralized stablecoins pose limited risks under stress conditions. It stressed that redemption requirements must be in line with jurisdictional issuance. Issuers must ensure that non-EU holders seek redemptions from the respective non-EU entity.

The Commission will also require mechanisms to match EU-based reserves and token volumes held in the EU. This condition will help prevent cross-border imbalances in redemption pressure. It will also increase the transparency and reliability of token operations.

Also Read | Société Générale’s SG Forge to Launch First Bank-Issued Dollar Stablecoin on Ethereum

Global Stablecoins Market Expansion

The stablecoins market has seen rapid expansion and the global regulators have to reconsider the control measures. The EU aims to strengthen its position as a leader in digital finance as well as tackle related risks. These measures also support the long-term effectiveness of the MiCA framework.

The president of the ECB, Christine Lagarde, recently reiterated fears that stablecoins would weaken monetary policy. She called for stronger support for a digital euro, which the ECB sees as a sovereign alternative. The concerns come amid increased institutional interest in fiat-based digital assets.

The Commission’s latest clarification shows a balance between market innovation and regulation. Whereas the ECB remains cautious, the Commission focuses on legal clarity and stability of the industry. This underlines the EU approach to facilitate digital finance as well as maintain robust protection.

Also Read | European Union Enacts MiCA Legislation: A Game-Changer for crypto Regulation