Overview: what stablecoins are and why they matter

Recent policy discussions have intensified around stablecoins as their market has grown from under USD 10 billion to over USD 300 billion. Despite most activity being dollar-denominated and dominated by a handful of issuers, concerns about financial stability persist, particularly as stablecoins move closer to the mainstream financial system.

Two distinct functions, one debate

The central insight is that stablecoins serve two different purposes: a monetary function (how they fit into the payments system and influence monetary sovereignty) and a technological/structural function (how they enable and integrate with digital settlement, crypto ecosystems, and blockchain-based infrastructures). These two roles have been conflated in policy discussions, leading to overstated conclusions about the instruments themselves.

Policy landscape and the European approach

Europe has positioned itself early by bringing stablecoins within regulatory oversight through the Markets in Crypto-Assets Regulation (MiCAR) in 2024, aiming to contain risks and safeguard financial system integrity. This contrasts with other jurisdictions where policy debates have begun to hinge on preserving global monetary influence and demand for sovereign debt.

Implications for the euro and monetary sovereignty

As discussions about stablecoins progress, a critical question emerges: is there a need for euro-denominated stablecoins to maintain monetary sovereignty and avoid digital dollarisation? The analysis suggests that the argument for promoting euro-denominated stablecoins weakens when the core question is separated from the instrument itself and reframed around the underlying financial architecture that enables safe evolution of payments and settlements.

Design origins and the path forward

Stablecoins originated to address price volatility by pegging to fiat money and short-dated government debt. While this anchored stability within crypto ecosystems, the broader role of stablecoins—extending the reach of reserve currencies and enabling far-reaching payment and settlement capabilities—requires a clear understanding of what benefits are truly achievable and sustainable without conflating tools with outcomes.

Why this matters for technology, fintech, and markets

  • Fintech firms must distinguish between monetary policy implications and technological infrastructure when evaluating stablecoins and related assets.
  • Capital markets professionals should assess how stablecoins influence settlement, liquidity, and cross-border payments without assuming they are a substitute for sovereign monetary policy.
  • Regulators and incumbents need to design architecture that preserves monetary sovereignty while enabling innovation in payments and digital finance.

Ultimately, disentangling the two functions clarifies that the potential benefits of euro-denominated stablecoins may be limited if the underlying architecture is not capable of safely supporting broader financial stability and inclusion goals.

Conclusion

As stablecoins rise from niche to mainstream, policymakers should clearly separate the monetary implications from the technological and infrastructural implications. This distinction helps avoid conflating an instrument with an outcome and guides more precise regulatory and architectural choices that support innovation while preserving financial stability.

Key takeaway for professionals

  • Policy should focus on the architecture that enables safe, scalable, and inclusive payments and settlement.
  • Monetary sovereignty considerations should guide design choices without assuming that stablecoins are inherently advantageous or necessary.

Sources

Original article: European Central Bank — Stablecoins and the future of money: separating functions from instruments. https://www.ecb.europa.eu/press/key/date/2026/html/ecb.sp260508~dd909fbed1.en.html