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The European Commission is poised to clarify that stablecoins issued by an EU-licensed company can be considered interchangeable, or “fungible,” with those issued by its non-EU entities. This move comes as a direct response to a query raised by France’s banking supervisor in April 2024, seeking clarity on the fungibility of identical stablecoins from different arms of the same company, some EU-licensed and some not.
This clarification is significant for the implementation of the EU’s Markets in Crypto-Assets (MiCA) regulation, which aims to provide a comprehensive regulatory framework for crypto assets, including stablecoins. MiCA mandates that e-money token (EMT) issuers, a category that includes many stablecoins, must hold a majority of their reserves in an EU-based bank to ensure they can meet redemption requests from customers.
The upcoming guidance will also address the mechanism for redemption requests for non-EU holders of jointly issued stablecoins, stating that these requests would be directed to the non-EU entity. Furthermore, it’s expected that EU-licensed EMT issuers that also issue fungible tokens abroad may be required to implement re-balancing mechanisms to ensure that reserves held in the EU align with the token holdings within the EU.
This clarification is crucial for stablecoin issuers operating globally, as it aims to provide a more predictable regulatory environment within the EU and facilitate the smooth operation of stablecoins across different jurisdictions while upholding the robust reserve requirements set by MiCA. However, some European Parliament members have expressed concerns that this interpretation might create a “backdoor entrance” for foreign stablecoins, potentially leading to issues like redemption arbitrage due to differing regulatory requirements between the EU and other jurisdictions.

Video courtesy of Interactive Brokers.

Video courtesy of Interactive Brokers.