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Ep 69: MiCA and Euro Stablecoins: Europe’s Next Test in Digital Finance
61 Plays18 days ago
Erwin Voloder of Blockchain for Europe joins us to unpack why euro stablecoins still struggle to gain traction under MiCA, despite Europe’s push for regulated digital finance. From remuneration and reserve design to legal uncertainty and central bank infrastructure, this episode looks at the frictions shaping the market now and the monetary future Europe may be building toward. The conversation is grounded in Blockchain for Europe’s report, Reforming MiCA for Euro Stablecoins: A Status Report, which lays out a sharper case for recalibrating key parts of the current framework. Check out the full report: https://www.blockchain4europe.eu/wp-content/uploads/2026/04/Reforming-MiCA-for-Euro-Stablecoins-26426.pdf
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Transcript
Introduction to The Policy Layer Podcast
00:00:06
Speaker
Welcome to the Policy Layer, where we talk about the real decisions shaping crypto, tech, and the future of trust. I am Silvia Sanchez, your host from the Avalanche Policy Coalition. We aim to bridge the gap between the builders of Web3 and the people that are shaping the rules. On our podcast, you'll hear from policymakers, developers, academics, and others working at the edge of tech and regulation.
00:00:32
Speaker
We ask the questions that everyone's actually wondering and we keep it easy to follow. This is the Policy Layer.
Exploring EUROS and MECA: Framework Questions
00:00:43
Speaker
Okay, hi everybody and welcome back to the Policy Layer here from the Avalanche Policy Coalition. Today we're talking about EUROS, stablecoins and MECA and the question that is becoming increasingly important for Europe's digital future. Is the current framework creating the right conditions for regulated digital money to develop and to scale?
00:01:02
Speaker
but We will
Guest Spotlight: Erwin Waldadir on Eurostablecoins
00:01:03
Speaker
find that out. We are joined by Erwin Waldadir from Blockchain for Europe, one of the co-authors of Reforming Mika for Eurostablecoins, a status report. And we'll be discussing to some of these key frictions that the paper identifies from remuneration and reserve design to legal clarity and market structure and what they may tell us about the kind of monetary system that Europe is building towards. So, Erwin, welcome. Thank you for joining us. Thanks for having me.
00:01:30
Speaker
Pleasure to be here Great. So let's start with the overall diagnosis before we get into these individual pressure points. So what is basically the core argument behind this report? What do you think would be like the overall thesis of this? And then we'll, you know, dissect each individual part.
Impact of Overregulation & Laffer Curve Parallels
00:01:49
Speaker
Sure. um I mean, I think like the whole paper that the idea behind the paper, it's it's one that's borrowed from tax policy. Right. So like we borrowed it from the Laffer curve, which is basically saying that, like, you know, just as taxing, like 100 percent um raises no revenue because ultimately nobody's going to bother to work. When you regulate an industry too harshly, um you know, you run the risk of of curtailing or curbing the same activity that you were actually trying to govern. and so i think that but What we're trying to say is that for for all its ambition and you know Mika is still the most complete horizontally focused piece of digital asset legislation um you know fairly anywhere.
00:02:31
Speaker
um what What it's inadvertently done in some sense is is to push Eurostablecoins onto the downward sloping side of that curve. and and And when you look at how much they make up in terms of like the percentage of global stable coin volume or even flows of stable coin volume within the EU, um you have that as like an order of magnitude lower than the euro's real economic weight globally. Right. So, you know, I just want to say that the paper is not anti regulation. You know, we're not trying to make a case that regulation is bad or that we need to do away with regulation
Striking the Balance: Regulation vs. Offshore Activity
00:03:04
Speaker
wholesale. I think what we're really trying to say is that, you know, you should keep regulation strict where it protects people, but then kind of strip out rules that are inadvertently just going to push activity offshore or into another currency or whatever else, um because, know,
00:03:21
Speaker
you know, if you do so, you run the risk of building something that's like, you know, it's ultra safe, but it's it's commercially lifeless. And I think that that's something that we really want to avoid in Europe specifically. you know i always make the point that Europe has a choice between, because there's a lot of discussions on, you know, strategic autonomy. We can either choose to be autarkic, you know, in like a self-contained bubble, like an island, or we can choose to be part of a global economy. And especially like, you know, on-chain finance is global by default.
00:03:50
Speaker
So I think that there's like an inherent tension between those two things. I like what you said of and not going to the part where, oh, it's ultra safe, but essentially lifeless when it comes to the commercial part. And and I think that's easier said than done, of course.
MECA's Ban on Remuneration: Competitiveness Concerns
00:04:04
Speaker
um And I think also one of the biggest pressure points that we noticed in the paper is the topic of remuneration, because that seems to go straight to whether euro stable coins are even competitive to begin with. So why does the paper argue that Mika's ban on remuneration may be holding euro stable coins back?
00:04:24
Speaker
So again, um you know as you know, under Mika, you can't stablecoin issuers or rather e-money issuers and art issuers can't pay interest. So like it's forbidden under Article 50. And I think it's recital 68, which says that tokens can't act as a store value. Right. And I think that from from some perspective, like that's that's reasonable insofar as you don't want stablecoins to quietly become, I don't know, like, you know, deposit substitutes and to drain money.
00:04:48
Speaker
out of banks. But if you look at the timing of that, which is interesting, since Mika came in, the ECB has hyped rates from like below zero to over 4%. And you know when those rates are high, people obviously notice. And then consumers naturally want to move their money towards whatever is going to be paying them. And I think we've seen this trend in in digital asset markets, you know kind of since their inception. Like there's this perennial search for yield and that's not going to go away, you know, insofar as you try to, you know, regulate it away. it just, it it doesn't work.
00:05:23
Speaker
um And so a stable coin that has its yield legally frozen, um it's sort of competing with one hand tied
Consequences of Banning Yield on Stablecoins
00:05:32
Speaker
behind its back. And it's doing so against bank deposits, against, you know, dollar coins that...
00:05:37
Speaker
find clever ways to do that anyways right like through through Lending pools and through defy gateways and and other means and I think that that's That's the sharpest point that we're trying to make is that if you ban yield it doesn't kill the demand for yield right? You're just gonna shove it into other directions that search for yield is still going to exist you know whether this is again unsecured lending or like mistaking schemes or you know rehypothecation etc that's arguably gonna fall outside of Mika's safety net and you know provided you can create a way to allow regulated remuneration You can sort of pull that all back within a you know into a perimeter that you can you can actually oversee it at least you can quantify kind of the risk and ah you know we're not we're also not saying that stablecoin issuers you know, if you understand them as like narrow banks should be remunerating at the same level as commercial banks, right? Which, which remunerate also because there's a demand for deposits, but because they engage in things like, you know, cross selling and then in foreign exchange and their, their information monopolists, right? Is what us economists like to call them. Um, So if you allow stablecoin issuers to remunerate, maybe be subject to like and what we use as an example, like a pass through. So you could have a pass through on a specific subset of the reserves and you could allow that to remunerate at least at the level of the risk free rate to provide some yield. um You know, we think that this could be at least in the interim sort of a compromise that would allow them to create some sort of um
00:07:06
Speaker
ah Quantifiable benefit to holders without you know running the risk of disintermediating the system wholesale and I think that this is and At least industry would support um obviously there's a large a Bank lobby that would argue that potentially this isn't what we want um But even going going beyond that and maybe we can get into this later, but you know with With users in the future increasingly potentially being like agents, like AI agents, or you know you're going to have autonomous commerce and this sort of stuff, those types of economic actors are going to optimize for the currencies that are the most prevalent, that are fungible, that are available across the most networks, and that provide incentives. And like if you're not creating stablecoin schemes that optimize for those values, currency is just not going to get selected.
00:07:58
Speaker
And I think that's so much more than just a technical design choice because it also affects essentially whether users and markets have a reason to adopt these instruments at all. And and once you move from incentives on on the user side, ah the next layer is the structure underneath, which is the reserve framework. so Shifting into that, what would be the main problem with the current reserve framework under
Systemic Risk and Reserve Framework Challenges
00:08:22
Speaker
Mika?
00:08:22
Speaker
You know, what we have currently, like, you know, we have these reserve rules that sort of force every stablecoin issuer to look basically the same, right? So um Mika channels their backing into like a very narrow band of assets. And then like a small set of those are kind of like your area government bonds. And then there's obviously a large portion of deposits, you know, 30 to 60%, depending on whether you're significant at a handful of big banks, um you know.
00:08:47
Speaker
And then if you look at each issue on their own, you know, that that looks perfectly safe. um But if everyone's holding the same thing, then, you know, you run the risk of engineering correlation within like into the entire sector. Right. So and what we use, what we use is, um you know, in an example, basically, you know, if you have Tether right now, which which holds more short term dated U.S. Treasury bills than than than than Germany. OK, so.
00:09:14
Speaker
there's There's large exposures that are happening in the market. um And if you you kind of circle back to to what we have in the EU, like even if a stress event hits um and everybody everyone redeems at once, they're all selling into the same really thin slice of the market at the same time.
00:09:33
Speaker
So, you know, the design... ultimately was, okay, let's find ways to minimize each issuer's individual risk. But then the and the unintended consequences of that is that, like, when you have when you when you have these sort of runs that potentially could affect in a cross-correlated way, you're actually creating system-wide risk.
00:09:55
Speaker
So, you know, you have something that's sort of, like, safe... and't know safe in isolation but it's fragile in the aggregate and i think that's potentially the problem so what we propose is um is to move things from you know a band between like like set one and set two capital subject to haircut so you can keep that credit flexibility but to provide a bit of breathing room for issuers and to not have that deposit concentration risk which I think industry has been calling for for a while. And to be fair, we see this also in the current MECA consultation. This is one of the questions that that comes up. So the commission is taking note of this and it's sort of you know asking feedback from industry. you know What do you think about the reserve
Jurisdictional Interpretation and Its Challenges
00:10:34
Speaker
framework? what do you think about remuneration? What do think about you know these sort of things?
00:10:38
Speaker
and um And I think that's a positive step because, you know you know, definitely at the association, we're going to be providing some some some input and feedback on that. But I think just from a structural perspective, like if you are an issuer, these are real macroeconomic knock-on effects that you potentially have to deal with. So it's it's a business decision for you, ultimately.
00:10:57
Speaker
Right, and I also feel like that's one of those areas where the policy instinct is understandable, but the system effects may be more complicated because on the one hand, like you have preserved design, which matters for safety, flexibility, for viability, as you mentioned, and trying to like reconcile all of these together. But also I think a the broader question is, okay, how does the framework work in practice? And another area that comes up is how is Mika being interpreted across the market so I'd like us to discuss how much of the current challenge is the legal text itself and how much is an even interpretation across across the jurisdictions because having a rule book is one thing but then having a market with legal certainty is another so what are your your thoughts on that part
00:11:45
Speaker
I think if I could just pick back up on the question on the on the on the deposit risk before I answer that, because I love this and I think this is really important to sort of understand where I'm getting from that. So like, you know, when you're when you're demanding kind of like 30 to 60% of your reserves, 60 on the side of the significant issuers to sit in deposits,
00:12:09
Speaker
That doesn't exist in any other major regime. Right. So it's it's actually a peculiarity of of our regime. So I think from an economic perspective, like first, those aren't the sort of sticky kind of household deposits that banks love. We're talking about big, concentrated wholesale deposits, um you know, that.
00:12:28
Speaker
have a potential of of run risk at the first kind of site of trouble or you know, at the first sort of better offer. And I think secondly, those deposits are not being used to fund real lending.
00:12:41
Speaker
Okay, because when from regulatory perspective, they're being classified as high outflow money. um So banks are just sort of parking them in those liquid buffers anyways. And I think from the third perspective, and and and this is this is really important, like that whole rule, it is in my view, is resting on a misunderstanding of how money flows.
00:12:59
Speaker
So, you know, you know, the fear is that if you have a stable coin issuer and I don't know, they're, they're buying securities instead of holding deposits that that's going to be draining the money from banks. But that's, that's not what happens. Like when the issue where buys a bond, okay, the seller gets paid in bank money. And then that deposit is simply reappearing somewhere else in the system.
00:13:20
Speaker
So you're, you're locking in issuers into a rigid constraints and And then you're sort of blocking them from selling those deposits at the first sign in a crisis, even when that might be the smarter thing for them to do. um And then that really starts to look sort of like you you deliberately want to lock them into those dynamics rather than rather than not. And I'm not going to get into whether that's a question of who lobbied who on what, but from just an economic perspective, it it it sort of looks like that. On your second question on...
00:13:54
Speaker
the uneven interpretation. I think the problem is that like Mika is trying to regulate such a new industry and it borrows from different pieces of like the EU financial services, the key. So, you know, a bit of method, bit of perspective, this bit of this. um But the the thing is that Mika is, and I've always said this, it's a regulation that reads like a directive, partially because it's so new, partially because it's required a lot of upskilling also in the public sector to be able to even handle the oversight required. um So I think that, you know, what we what we don't say in the paper you this is.
00:14:30
Speaker
you know this is Don't think of this as, you know, aimed at the text itself, like the substance of of of of what we discuss and and those thresholds and and and all of this. I think like that's that's pretty hard coded in there. um and And yeah, we want to see that amended. But I think that the the bigger issue is, you know, we have a lot of commission level guidance and, you know, urgent need for Q&A clarifications, especially around certain issues.
00:14:58
Speaker
Potentially around multi issuance and these sort of things which you know is now going to be discussed in MISP But again, I think it's also because there's this in Inconsistent application because it reads like a directive on the side of the NCAs and then also when you when you kick this up to the level of the ESAs it becomes increasingly Also difficult and I sympathize I sympathize with them because I understand you know as former regulator, I understand the problems associated with that when you're faced with new piece of legislation.
00:15:29
Speaker
um So, like, yes, a large part of the problem is is legislative. um But I think that, you know, the secondary but real layer of that friction then comes from this fragmented interpretation. So those weights aren't equal.
00:15:44
Speaker
And um even if we did have a consistent interpretation, i think that we still then run kind of full circle and come back to saying, well, then if we're consistently applying onerous rules, then we still don't actually end up doing ourselves a favor. So it's sort of like if you're familiar with an orboros, like a snake that eats its own tail.
00:16:07
Speaker
Okay. Okay. know what to you mean. The good thing is that we're not the only jurisdiction in the world that has these problems. I think every major jurisdiction that's trying to bring digital asset regulation, you know, to the surface and trying to create some sort of framework is facing the exact same issues. um And part of that is simply because this is such a new industry.
00:16:25
Speaker
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Speaker
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00:17:17
Speaker
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00:18:47
Speaker
and And sure, I think part of it is because there's quite a lot of regulatory weight associated with them like they have heavier transparency and um disclosure duties But then there's also this practical result in the market for them is also a bit more complex So when you have a market that's a bit more complex and then you pile on more heavy and complex regulation You're not going to have something that materializes its scale. So I think for asset reference tokens as well They were sort of included in there because when Niko was originally being drafted
00:19:20
Speaker
many years ago, if you look at Libra, like Libra was the original asset reference token. So I think that specific section was inserted in there directly as a response to what we saw with Libra. And then the stuff on EMTs and everything else sort of came after, but there really aren't any. And it's it's not that you couldn't create asset reference tokens. You you certainly could, but for whatever reason, be it regulatory, be it the complexity of the instrument itself, um we just haven't seen any um or anything meaningful.
00:19:53
Speaker
I haven't checked the estimate register recently to see how many how many are issued. I think there may be couple, but compared to how many like euro stablecoin issuers we have, it's orders of magnitude smaller.
00:20:06
Speaker
Yeah, I also think that um we'll have to see whether that those numbers change, what happens also now that we're in the consultation phase. and I think that also brings us to another major part of of the paper, which is whether the issuers have access to the infrastructure they would need to operate safely at scale.
Enhancing Stability: Access to Central Bank Infrastructure
00:20:27
Speaker
And why why do you argue for calibrated access to central bank infrastructure for MECA compliance issuers? And we can, you know, do like a high level logic, like liquidity, risk management, and then go more specific if needed. Okay.
00:20:43
Speaker
Okay. Yeah. So as you correctly pointed out, like right now, Mika compliant issuers, they're basically locked out of the ECB's plumbing. So, you know, access to Target T2S, access lender last resort facilities, credit facilities, all that stuff. So they're not part of that, you know, subject to some very narrow...
00:21:02
Speaker
very narrow within the policy on the use of pre-funding that they can do, but it's nothing meaningful. And so basically the ECB's own policies are essentially they they cap any, first of all, they cap any account remuneration to zero or at least to the short-term rate minus like, I think it's somewhere around 20 basis points. But it it excludes issuers from things like intraday credit and it basically explicitly refuses to offer safeguarding accounts, right? so you know for For us, you know this is a missed opportunity. I think on the on the deposit side, um like when you have direct access to central bank accounts, it sort of gives um it gives issuers like a much more ah secure, kind of generally risk-free settlement asset.
00:21:45
Speaker
um And it cuts out a lot of middle layers. right So that also ends up conferring real credibility because you know having access to central bank plumbing is itself a credible signal and then I'm kind of like on the credit side and this is where things are I guess maybe a little bit more forward-looking You know, you can think about lender of last resort logic So if we ever have your stable coin issuers that are kind of big enough that they could trigger fire sales and you know potentially contagion or whatever Having that sort of tightly defined emergency access is actually super important um
00:22:18
Speaker
Because the point of the hundreds of last resort, it's kind of never to bail out, you know, reckless companies. it's to It's to stop fire sales and the sort of contagion risk that could happen and and and kind of harm the rest of society. So I think what we're what we're advocating for is this calibrated,
00:22:36
Speaker
kind of tiered access that's also capped. And, you know, our pitch is that you can you can do this or you can extend this without surrendering monetary policy control. um I would also like to point out, and we didn't we didn't talk about this in the paper, but like if you're going to allow lender of last resort facilities for stablecoin issuers, um we could we should also potentially talk about deposit insurance on the other side.
00:23:00
Speaker
right So I think that this is also potential future point in that discussion. um you know And I'd be keen to see what the... um with the with the um uh, with the ESM and, and, and other actors have to have to say about this, because in my view is that if you're going to apply God's principles, which is basically, you know, the carrot versus the stick, you're going to give them access to all OLRs.
00:23:25
Speaker
There should be some responsibility also on the part of the issuers in the future on the, on the deposit insurance side. And I think this is also what, you know, you see this in the genius act, right? Like, you know, talking about FDIC insurance. And I think also even that the, the, um,
00:23:38
Speaker
Bank of England's most recent proposal, like, you know, for for larger issuers, they're saying, well, you need to help you need to hold some of your reserves and central bank money or have access to central bank facilities.
00:23:49
Speaker
I think that's arguably better than what we have right now currently, right? So this is, this is you can you can make the argument that's the more superior model um because access to central bank plumbing confers a degree of stability that honestly you can't get from the private sector, um which should be a net positive for everybody down down the line.
00:24:08
Speaker
Yeah, I think we have to see how that evolves both a on the US with the Genius Act, on the UK, and now with Mika with these and differences in how the frameworks are being shaped. And just to like wrap us up, because once you put all of that together and we've gone over different issues, remuneration, reserve requirements, I think that and the conversation becomes bigger than, oh, just one product category or one type of token. and But it's a matter of, okay,
00:24:37
Speaker
Let's see Europe's place in digital finance more broadly because at the end of all this and What kind of monetary environment do you think that Europe should be preparing
Preparing Europe for a Programmable Economy
00:24:48
Speaker
for? I mean, I sort of alluded to it earlier. I think that um We're entering a world in the next 10, 20 years where, you know, money, finance, commerce, it's program programmable and it's on chain by default. And so the real contest is not a contest about retail payments. It's about having a currency that can act as a default sediment rail for tokenized securities, and you know, cross border treasury flows and,
00:25:20
Speaker
machine mediated commerce at the end of the day. Right. So this, you know, this agent to agent, you know, this protocol level flows where, where agents are, are acting as, as autonomous economic actors in their own right. So,
00:25:34
Speaker
When they can transact on their own um and when they can do things autonomously, they're going to optimize for things like yield and efficiency. So if you don't have euro-denominated stablecoins or dollar-denominated stablecoins or yen or real or dong or whatever currency you want that are structurally allowing those optimization strategies to actually be selected, then you don't have something that can act as a viable settlement asset. you're You're basically creating something that's invisible in the economy that's coming. And so I think the main argument of this paper is arguably one. It's an argument about time.
00:26:18
Speaker
Right? So the time it takes to create tools that you need to compete, you know, the kind of reforms that you need, and then what sort of window are we actually looking at to be able to bring all of this stuff online? um Oftentimes, unfortunately, those windows close faster than legislation tends to move. it doesn't matter what jurisdiction you're in. But, you know, I would hope that Europe...
00:26:45
Speaker
is cognizant and is preparing for, um you know, and um an on, an on-chain economy, but also, you know, to leave the door open, um,
00:26:57
Speaker
that we, you know, maybe less of a focus on paperwork and more of a focus on kind of creating these these structural efficiencies while we still have the window to do so. Because what happens when agents come online and swarms is that that growth is up is a hockey stick curve. um And then there's a certain point after which where those those network effects become self-reinforcing. And once that locks in, it's very difficult to reverse.
00:27:24
Speaker
I'm sure it is. And that's also why it's so important to do the work that you guys are doing at Blockchain for Europe, to also have space for these conversations. And we're out of time. So once again, thank you so much for joining us, Erwin. I'm sure that 25 minutes is not enough to discuss all the complexities and the intricate world of stablecoin policy. because there's clearly a lot riding on how Europe is approaching euro stablecoins from here. We have legal clarity, market confidence, monetary infrastructure, and pretty much the role of the euro in digital finance. And while they are foundational questions, they're only going to become even more important as the market evolves.
00:28:04
Speaker
There's still a lot more work to be done, and we'll link the paper on the podcast description. and also invite people to check out what you guys are doing at blockchainforenEurope.eu. It's the four, isn't the number. And that's it for this episode of The Policy Layer. For more episodes and educational resources, visit avalanchepolicy.com. Follow us on socials to stay connected and we'll see you all next time.
00:28:30
Speaker
We hope you enjoyed this episode of The Policy Layer. If you want to learn more, check out avalanchepolicy.com for free educational resources. And also follow us on social media at avalanchepolicy to stay updated.