Europe's Stablecoin Boom Hides A Dangerous Redemption Loophole

Europe's stablecoin market stays tiny despite growing bank interest
Multinational issuance lets dollar runs hit European issuers hardest
Automatic stabilisers could close the gap; Europe hasn't adopted them

The euro-stablecoin market reached $912 million at the end of the summer of 2026, according to data from DefiLlama, while the corresponding dollar market exceeded 316 billion. The largest European stablecoin, Circle's EURC, held around $462 million in circulation and ranked 86th among all digital assets. This size, less than a third of one percent of the global market for stablecoins, did not prevent twenty-one banks and financial institutions, including Santander, Deutsche Bank and UBS, from announcing on September 1, 2026 their commitment to a stablecoin issuance joint venture with a target purchase in the first half of 2027. The scale remains small, but the question that now concerns regulators is not only how big a European stablecoin can become, but what happens when it is issued simultaneously inside and outside the European Union.

The Scale Of The European Stablecoin Remains Marginal

The rise of the European market after the full implementation of the MiCA regulation in December 2024 came mainly from regulatory concentration rather than an actual surge in demand. Tether decided to discontinue its European token EURT and not apply for licensing, as Tether deemed the regulation's requirement to hold at least 30% of reserves in European bank deposits incompatible with the company's business model, rising to 60% for issuers considered significant. This departure left a void that was mainly filled by Circle, whose EURC currently accounts for around 41% to 50% of the total European stablecoin market, a share that had risen from just 17% a year earlier. This structure shows a market that did not grow because it won over consumers, but because the regulation drove away competitors.

The size of the dollar relative to the euro in this market remains disproportionate. Tether's USDT maintains a market capitalization of more than $183 billion and Circle's USDC is approaching 75 billion, amounts that together exceed the total of Euro-stablecoins by hundreds of times. Circle itself is the example that concerns European regulators today, as USDC is issued by both the American parent company and a French subsidiary licensed under MiCAR, through the same smart contract. This practice, known as multinational issuance, allows the same token to be marketed simultaneously as a European and American product, without the holder being able to distinguish in which jurisdiction the unit he owns was issued.

A Global Bank Consortium Tests Europe's Stablecoin Ambitions

The joint venture announced on September 1, 2026 is the largest private trial the European banking industry has attempted to date in the space of stablecoins. Twenty-one banks and financial institutions from North America, Europe, East Asia, the Middle East and Africa have committed to setting up a new company within the second half of 2026, with the aim of the new solution reaching the market in the first half of 2027. Among the European participants are Santander, BBVA, Deutsche Bank, Commerzbank, Crédit Agricole, Lloyds, UBS and Rabobank, alongside US banks such as Bank of America, Citi and Goldman Sachs. The initiative builds on an earlier announcement in October 2025, when an initial team of ten banks had begun exploring the issuance of digital money with full reserve coverage.

The initial focus of the consortium is on a product denominated in dollars, with the euro explicitly mentioned as a priority in the subsequent expansion to other G7 currencies. The announcement clarifies that the initiative is designed to comply with both the US GENIUS law and the European MiCA regulation, where each legislation applies. This composition, banks based on both sides of the Atlantic that are planning a common issuance infrastructure, replicates on an institutional scale exactly the multinational issuance model that Circle already implements with USDC. If the consortium goes ahead as planned, Europe will soon have a second major example of a token issued in parallel under US and European rules, with the question of the compatibility of the two redemption regimes yet to be answered at the legislative level.

Multinational Issuance Opens An Escape Route To The European Station

The discrepancy between the two redemption regimes is at the heart of the problem. Under MiCAR, the holder of a European stablecoin has an unconditional right to redeem it at face value, at any time and without commission, while the issuer must hold reserves in safe and liquid assets, with at least 30% in bank deposits and equity of 2% to 3%. The US GENIUS Act, as specified by the rules proposed by the Office of the Comptroller of the Currency (OCC), treats the issuer more like a money market fund. Redemptions can be delayed by two business days, which extends to seven calendar days if redemption requests exceed 10% of the circulating quantity within 24 hours, in which case the issuer may also impose a modest fee. A CEPR analysis describes the phenomenon through a railway image, where the same tech token rolls on the same digital lines, but can be disembarked at stations in different jurisdictions, each with its own reserve vault and exit rules.

Because the global trading desk only records equivalent balances and not the issuing jurisdiction, any holder looking for the fastest, cheapest and legally safest exit can route their token to the European station, regardless of where it was originally issued. A redemption pressure that starts in the US cryptocurrency markets or dollar funding thus ends up concentrating on the European issuer, whose reserves are configured for its own issuance scale rather than for the global set of the token. A VoxEU column had already pointed out this risk in October 2025, stressing that the passage of the GENIUS law last July sharpened the need for immediate legislative adaptation in Europe. The irony of the mechanism is that the more efficient, fast and reliable a European publisher becomes, the more attractive it becomes as a way out in times of pressure, with the result that the very quality of European regulation becomes a source of exposure.

The Automatic Stabilizer Suggested By Academic Research

The question surrounding whether multinational issuance is even compatible with MiCA remains open at the institutional level. An ECRI analysis described in September 2025 a sharp disagreement between the European Central Bank, which warns of prudential and national sovereignty risks and the European Commission, which follows a narrower administrative interpretation of the regulation. A 2025 legal analysis had already identified two archetypes that are considered legally acceptable under MiCA, parallel issuance and the consortium model, but it has not been fully clarified how these relate to redemption rights in a time of crisis. Within this regulatory gap, the proposal set out in a new CEPR policy analysis in 2026 introduces the concept of an automatic stabilizer for stablecoin issuers.

The mechanism provides for a redemption fee of at least 1% when outflows exceed an initial threshold of between 5% and 10% of the European issuer's circulating volume, followed by a temporary suspension at more extreme levels of more than 10%, corresponding to the two- to seven-day period provided for by the US regime. This sequence, first a commission and then a freeze, aims to mitigate the cliffhanger caused by the abrupt suspension of redemptions. The activation of the mechanism should be automatic, codified in the smart contract itself and in the issuer's systems, with no room for discretion by the issuer or supervisor, as the experience of money market funds in 2020 showed that optional tools are not activated promptly. The analysis also proposes unified supervision of all multinational issuance stablecoins regardless of the size of their European issuance, along with an extraordinary power of the European Central Bank to suspend redemptions when predetermined measures prove insufficient.

Without Coordination, The European Market Is Left Exposed

The alternative proposals considered by the European Commission in the May 2026 consultation on the revision of MiCAR include limiting redemption rights to holders who actually circulate the token within the Union, special liquidity buffers and more frequent reporting of reserves. These measures face implementation difficulties, as a non-eligible holder can simply sell the equivalent token to a customer of an eligible European crypto-asset service provider, since the ledger itself does not discern the issuing jurisdiction. Liquidity buffers increase absorption capacity, but without changing the redemption incentive that pushes holders towards the European station. The ability to transfer reserves between jurisdictions is also at risk of failing at exactly the moment it is needed most, if the US authorities decide to hedge liquidity in conditions of massive dollar outflows.

The fundamental difference of the automatic stabilizer proposal is that it works independently of the cooperation of the US authorities, since it is based on predetermined rules rather than crunch-moment agreements that depend on the goodwill of another jurisdiction. The choice to align European redemption rights downwards, closer to the American standard, seems contradictory for a regulatory framework that has built its reputation on stronger consumer protection. However, as Circle's experience and now the new consortium of twenty-one banks show, a token circulating globally cannot maintain locally stronger rights without becoming a privileged exit channel for pressures that arise elsewhere.

The $912 million market recorded by DefiLlama in late summer 2026 seems too small to warrant such widespread legislative concern. But the same size makes the reform cheaper now than it would be if the European market reached the tens of billions targeted by the new consortium of banks for 2027. The very trajectory of EURC, a product that gained market share within a year without a corresponding rise in real demand, shows how quickly the picture can change when regulation shifts capital flows. If the twenty-one banks go ahead with their plan for a European stablecoin in 2027 without an agreement on common redemption rules, the same regulatory credibility that would attract capital to the eurozone will remain the point from which a crisis that never started in Europe can escape.

This article reflects the analytical judgment of The Economy Editorial Board and does not constitute policy advice or the official position of any affiliated institution.

References

Arnal, J. (2025) Multi-Issuance Stablecoins and MiCA's First Real Credibility Test. ECRI In-Depth Analysis, Centre for European Policy Studies, Brussels.
Banco Santander (2026) Group of Leading International Financial Institutions to Establish Stablecoin Enterprise. Press release, 1 September.
DefiLlama (2026) Stablecoin Market Capitalisation Data.
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Martino, E.D., Monnet, E. and Perotti, E. (2026b) Stablecoins Without Borders: Stablecoin Multi-Country Issuance and Dollar-Run Risks in Europe. CEPR Policy Insight No. 151, Centre for Economic Policy Research, London.
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