The EU is looking to pass a law that bans US Dollar stablecoins like Tether (USDT), Circle's USD coin and Binance USD (BUSD). This would be part of the Markets in Crypto Assets (MiCA) legislation. The law proposes limiting the issuance and use of stablecoins that are not pegged to an official currency in one of the EU's 27 member states (for example - the Euro IS an official currency so euro stablecoins would be allowed ). This law has already been approved. At this point, the only thing remaining is that the details need to be ironed out.
Blockchain for Europe and the Digital Euro Association have been arguing the case against this ban. Here is what they said in a letter to the EU council:
“The three largest stablecoins by trade volume are at risk of being banned in the EU from 2024...Restricting their use in the Euro area would cause crypto markets here to seize up, with potentially destabilising effects and a major outflow of crypto activities outside of the EU.”
So basically... it's a big deal. People all around the world use stablecoins as an on and off-ramp into crypto. It's a hassle to convert fiat into crypto and back into fiat every time you trade. So users store their assets in the form of stablecoins when they don't want to take on any risk but don't want to take their money out of the crypto ecosystem. If all of the top stablecoins are banned in the EU - this is a big problem for anyone wanting to invest in crypto within the EU.
Why not use Euro stablecoins?
The obvious solution is for people in the EU use to use Euro-backed stablecoins rather than the US Dollar stablecoins they use now.
The main problem is that Euro stablecoins (stablecoins that are pegged to the Euro rather than the US Dollar) are much, much smaller and less liquid, so it is difficult to use them to facilitate crypto trading. The Euro's share as a currency in crypto markets is 0.2%.
To give a concrete example, Circle has both a US Dollar stablecoin (USDC) and a Euro stablecoin (EUROC). The market capitalisation of USDC is $52 billion. The market cap of EUROC is $76 million. That's almost 1000 times less.
This legislation is due to come into force in January 2024. Although it's unlikely to happen that quickly, this legislation (or news of it) may drive more capital and resources into Euro-backed stablecoins. But it will undoubtedly cause some pain in the EU crypto scene too.