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EU Watchdog Warns of 'Serious Threat' from Stablecoins, Pushes for Ban on Offshore Models

Published on: 06 October 2025

EU Watchdog Warns of 'Serious Threat' from Stablecoins, Pushes for Ban on Offshore Models

The European Union’s top financial risk authority has warned that stablecoins could pose a serious threat to financial stability unless urgent safeguards are introduced.

In a statement released on October 2, the European Systemic Risk Board (ESRB), chaired by European Central Bank President Christine Lagarde, pointed out vulnerabilities in so-called “third country multi-issuer” stablecoin models and called for immediate policy action.

Stablecoins, designed to maintain a steady value by pegging to fiat currencies or government securities, have surged over the past five years into a market worth more than $300 billion, according to DeFiLlama data.

The sector is dominated by dollar-backed tokens, with Tether’s USDT controlling more than 58% of the market. Euro-backed tokens, by contrast, account for just 0.15% of the global total.

The ESRB, during its 59th General Board meeting on September 25, stressed that interchangeable tokens issued both within and outside the EU contain “built-in vulnerabilities.”

Lagarde Pushes Back on Offshore Stablecoin Structures Under MiCA Gaps

Under this structure, EU-regulated issuers must hold reserves locally, while non-EU partners manage identical tokens backed abroad. Regulators warn that during times of stress, investors could rush to redeem in the EU, overwhelming local reserves and leaving the bloc exposed to offshore liabilities.

According to people familiar with discussions, the ESRB endorsed a recommendation to ban such models. Though non-binding, the move places pressure on EU authorities to either impose restrictions or outline other protections.

Both the ECB and ESRB declined to comment on the proposal, but Lagarde has repeatedly shown concern that the bloc’s regulatory framework, known as MiCA, leaves gaps in coverage for cross-border schemes.

Lagarde compared the risk to past banking crises, where liquidity mismatches and inadequate reserves destabilized institutions across borders.

She argued that unless strong equivalence regimes and safeguards for cross-border transfers are introduced, multi-issuer models should not be permitted to operate in Europe.

The warnings come as global financial risks remain elevated. The ESRB noted that investor optimism has pushed asset valuations to record highs, leaving markets vulnerable to reversals.

While stress tests show European banks are resilient, weak growth prospects and rising fiscal pressures continue to weigh on stability.

The board pointed to ongoing geopolitical tensions and shifting trade policies as additional challenges for Europe’s financial outlook.

[SRC] https://finance.yahoo.com/news/eu-watchdog-warns-urgent-stablecoin-221842304.html

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