Europe's crypto crossroads — regulatory pioneer to autonomy

This article was initially published in Eurofi magazine.

Europe is a pioneer in crypto‑assets oversight. The Markets in Crypto‑Assets Regulation (MiCAR) framework, which took effect in late 2024, provides legal clarity, a common taxonomy, and passporting rights for custody, trading, and tokenization across the single market — and serves as a model for the rest of the world.

But converting first‑mover advantage into market leadership has been a challenge.

From rulebook to rails — Turning MiCAR into global market momentum

MiCAR’s prudential rigor reflects a bank‑centric approach. Licensing is complex, reserve and safeguarding requirements are demanding, and authorization timelines remain lengthy. While these features enhance consumer protection, they can slow innovation. Moreover, MiCAR leaves important gaps on deposit tokens, the emerging bridge between bank money and blockchain assets, while decentralized finance (DeFi) remains largely outside its perimeter pending future guidance.

As a result, despite strong legal foundations, euro‑denominated stablecoin and tokenized asset activity remains modest. Euro stablecoins account for less than 2% of global supply, raising concerns over the growing “dollarization” of crypto markets. Europe built the rulebook — but others are beginning to build the rails.

Across the Atlantic, meanwhile, the US is edging toward a federal stablecoin framework that could reshape global market dynamics. Congressional proposals in 2025 signaled bipartisan intent to set consistent issuance standards, prohibit interest on circulating tokens while permitting limited non‑interest “rewards,” and clarify custody and redemption rules. A more openly pro‑innovation regulatory posture has since stimulated institutional adoption, with smaller banks beginning to offer stablecoin access to payments and wealth clients.

Three battlegrounds — Shaping the future of digital finance

The race for leadership in crypto, digital money, and tokenization is now defined by three critical fronts.

• In crypto trading, global DeFi and offshore exchanges dominate US dollar and euro volumes, with European retail flows increasingly intermediated abroad.
• In digital money, US dollar stablecoins account for the majority of on‑chain settlement value, while banks explore deposit‑token pilots to protect funding and payments economics.
• And in tokenization, US markets lead in live experiments across money market funds, Treasuries, and collateral networks — moving from proofs of concept to economically meaningful scale.

Our analysis suggests that even if global stablecoin supply were to rise to around $4 trillion by 2030 — still small compared with roughly $72 trillion of projected global commercial deposits — the impact on bank funding and payments economics could be material, even as new value pools may emerge around blockchain transaction processing, conversion, and FX services.
Yet the proliferation of stablecoins, bank tokens, tokenized funds, and central bank digital currencies (CBDCs) could fragment client liquidity and challenge banks’ historic role at the center of financial flows. The market for tokenized deposits and euro stablecoins remains open, but speed and scale will decide who captures it.

Closing the gaps — Deposit tokens, DeFi and supervisory speed

There are four ways Europe can improve its chances:

1. Safeguard strategic autonomy in digital money. In addition to the European Central Bank’s efforts on the Digital Euro, MiCAR’s prudential strength must be matched by practical pathways for euro‑denominated innovation. Clarifying the treatment of deposit tokens and enabling interoperable settlement arrangements — for instance, clearinghouse‑style mechanisms for tokenized deposits — would materially reinforce Europe’s monetary sovereignty.
2. Accelerate supervisory execution. Europe should extend EU‑level oversight to major cross‑border crypto-asset service providers, in the spirit of the Single Supervisory Mechanism, to curb regulatory arbitrage. It should also equip national authorities with pragmatic guidance and resources so authorization speed keeps pace with market dynamics.
3. Integrate DeFi and tokenization coherently. Current regulation covers centralized intermediaries but leaves decentralized protocols largely outside its scope. Europe needs a durable framework defining how banks engage with DeFi and how tokenized securities interface with MiFID, CSDR, and settlement rules.
4. Build and own the digital‑asset rails. As history shows, those who design the infrastructure — from card networks to app stores — capture disproportionate value. Europe must now translate its regulatory leadership into infrastructure leadership through public‑private cooperation and strategic investment.
   

Winning the race for digital money — infrastructure, interoperability, autonomy

Europe’s success in crypto regulation has demonstrated foresight and discipline. The next test is execution — converting clarity into capability. Acting decisively on supervision, interoperability, and infrastructure can ensure Europe’s institutions do more than just comply with global digital‑asset frameworks but also help build and export them.

Read the original article here.