Author: Macauley Peterson, Blockworks; Compiled by White Water, Golden Finance

As of December 30, 2024, MiCA officially came into force, marking a turning point in the EU's attitude towards crypto assets.

Although the euro has an important place in TradFi — accounting for 20-30% of global foreign exchange reserves, SWIFT transactions, and trade flows — it accounts for less than 0.5% of global stablecoin circulation.

Patrick Hansen, an industry expert and Circle EU policy leader, expects this to change. He emphasized the importance of MiCA as “the world's most comprehensive regulatory framework for crypto assets.”

“The EU has a unique opportunity to position itself as a global center for crypto innovation,” Hansen noted.

The reason the euro lags behind in terms of stablecoins

Hansen attributed the difference between the Euro and the US dollar on-chain to several factors:

1. Liquidity dominated by the dollar: “The network effect surrounding the US dollar stablecoin is that the euro stablecoin cannot catch up with. European users who interact with the global cryptocurrency market will choose the cheapest and most liquid currency.”

2. Historical negative interest rates: “Negative interest rates have long called stablecoin business models into question in the Eurozone.”

3. Regulatory uncertainty: Prior to MiCA, the euro stablecoin lacked a dedicated regulatory framework, which hindered the development of institutional players.

MiCA addresses the third point by creating a clear framework for stablecoins. Hansen pointed out that the bill's entry into force has aroused institutional interest, and major European banks and other players are exploring or launching euro stablecoin products. He emphasized that Circle launched EURC under MiCA-compliant conditions, with reserves managed entirely by a French regulated entity, and stated that “we saw a 60-70% increase in EURC supply, thanks to launches on multiple blockchains.”

MiCA requires stablecoin issuers to hold reserves in proportion to the tokens in circulation in the EU. Hansen explained that Circle uses a “dynamic rebalance” model to comply with regulations.

“If we see an increase in the amount of USDC the EU holds, we will increase European reserves accordingly,” he said.

Converged on-chain Euro use cases

Hansen sees two main drivers for the adoption of euro stablecoins: a regulated crypto capital market and the practical application of stablecoins.

“Only stablecoins authorized under EU rules will eventually be used as trading pairs in regulated crypto markets,” Hansen said. “I wouldn't be surprised by the significant growth in this area.”

The change prompted cryptocurrency exchanges to remove USDT from EU clients' trading pairs.

Hansen said enterprise use cases such as cross-border payments and tokenized financial instruments are receiving attention. “Corporate suppliers in the Eurozone will inevitably require risk management of assets denominated in euros,” he said.

However, while MiCA provides a solid foundation, Hansen warns that it is only “version 1.0” and must continue to evolve to meet emerging challenges. He also warned that the EU's travel rules (TFR) require additional user verification for certain transactions, which could cause friction — especially for self-hosted wallets.

Ultimately, MiCA's success will depend on its ability to balance promoting innovation with protecting consumers and creating competitive local markets.

As Hansen said, “Only time (and the market) will tell if MiCA can achieve its goals.”