U.S. and EU Clash Over Stablecoin Regulation as Dollar-Denominated Tokens Dominate 99% of Market

The global digital finance landscape is witnessing a pivotal contest between the United States and the European Union over the governance of stablecoins. The U.S. and EU approaches reflect divergent strategies in balancing innovation, regulatory oversight, and monetary sovereignty, with significant implications for the future of digital currency [1].

In the U.S., the implementation of the GENIUS Act on July 18, 2025, marks a key step toward regulating dollar-backed stablecoins. The act mandates that stablecoin issuers maintain one-to-one reserves in cash or short-term U.S. Treasuries, while also adhering to reporting requirements and anti-money laundering regulations. This framework aims to legitimize stablecoins as financial tools while reinforcing the global dominance of the U.S. dollar [1]. Advocates argue that the legislation supports innovation and institutional participation in the U.S. crypto ecosystem. However, critics warn that the rules could favor large firms and create barriers for smaller players, potentially increasing systemic risks through pseudonymous transactions and capital flight [1].

In contrast, the European Union has moved forward with the Markets in Crypto-Assets (MiCA) regulation, which is set to be fully operational by late 2024. MiCA requires stablecoin issuers to be based in the EU, maintain 1:1 reserves, and comply with strict consumer protection and operational standards. The regulation is designed to prevent non-compliant foreign stablecoins from being freely distributed within the EU. Despite these measures, U.S.-issued stablecoins can still be transacted on decentralized platforms, creating regulatory loopholes that challenge the EU’s monetary sovereignty [1].

European officials have expressed concerns that the widespread use of U.S. dollar-backed stablecoins could undermine the eurozone’s financial systems. As these digital assets gain traction, the eurozone risks losing influence over interest rates and facing higher borrowing costs. In response, the European Central Bank (ECB) is exploring the digital euro as a tool to preserve monetary control and counter the dominance of foreign stablecoins [1]. However, analysts note that the EU’s regulatory approach, while focused on security and consumer trust, may stifle innovation if it fails to keep pace with the more flexible U.S. market.

The global stablecoin market is already skewed in favor of the U.S. Dollar-pegged stablecoins account for nearly 99% of the market, while euro-backed tokens have a significantly smaller footprint, with less than €350 million in circulation. European exchanges have started delisting non-compliant tokens like USDT and PYUSD, shifting liquidity and prompting further scrutiny over market dynamics [1]. Although the U.S. legislation prohibits interest on stablecoin holdings to mitigate banking-like risks, experts caution that a depegging event could still lead to “crypto bank runs” with spillover effects on traditional financial markets [1].

The competition between the U.S. and EU over stablecoin regulation is not just about compliance—it reflects a broader struggle over the future of digital money. The U.S. model promotes rapid innovation and global adoption, while the EU prioritizes consumer protection and monetary stability. For analysts, students, and developers, the jurisdiction that successfully balances speed and safety will likely emerge as the dominant force in the global stablecoin sector [1].

Source: [1] https://coinmarketcap.com/community/articles/689070aba62400030f0722e3/