MiCA’s Stablecoin Safeguards Could Trigger Widespread Systemic Failure

The Markets in Crypto-Assets (MiCA) regulation in Europe, celebrated as a major step toward bringing order to the unpredictable crypto sector, might unintentionally be setting the stage for future financial instability. Although the regulation enforces requirements like proof-of-reserves, capital reserves, and redemption protections for stablecoins, some critics say it overlooks broader systemic dangers that could arise as these digital currencies become more intertwined with conventional financial systems, as

points out. According to one analyst cited in the article, the paradox is that MiCA’s detailed oversight gives stablecoins an air of legitimacy, but does not give authorities the tools to manage their potential large-scale economic impacts, the Coindesk article continues.

Stablecoins are evolving from specialized crypto assets into widely used payment methods, transforming the financial landscape. By replicating features of bank deposits—such as easy access, liquidity, and minimal price fluctuation—stablecoins are now directly competing with established banks. This development could disrupt how monetary policy is implemented, as capital shifts from traditional banks to crypto tokens backed by short-term government securities, the Coindesk article cautions. The Bank of England (BoE) has already highlighted this threat, with Governor Andrew Bailey suggesting that stablecoins should face similar regulations as banks and proposing limits on how much can be held to reduce systemic risk, the article further reports.

Adding to the complexity is the expansion of decentralized finance (DeFi), which

will rival traditional finance (TradFi) with $2 trillion worth of tokenized real-world assets by 2028. This surge is being driven by a projected stablecoin boom in 2025, which is increasing on-chain liquidity for DeFi lending and borrowing. However, delays in U.S. regulation could hinder this progress and create uncertainty for those in the market, according to the Coindesk markets report.

The issue is made worse by regulatory loopholes. The UK's Financial Conduct Authority (FCA) has taken a careful approach to domestic stablecoins but is more lenient with those issued abroad, leaving users exposed to risks outside its control, the Coindesk commentary notes. This gap encourages issuers to move their operations overseas while still serving UK customers, effectively recreating the shadow-banking risks regulators aimed to eliminate, the article adds.

MiCA’s main weakness is its belief that proof-of-reserves alone guarantees stability. Even fully backed stablecoins can spark liquidity crises if there’s a rush to redeem or can worsen shocks if holders treat them as if they’re insured deposits, the Coindesk commentary warns. The regulation also lacks measures to address the risk of currency substitution, where tokens pegged to the U.S. dollar could lead to unofficial dollarization in countries outside the U.S., the article observes.

The dual nature of stablecoins—combining the efficiency of DeFi with the trust of traditional finance—creates distinct challenges. Unlike bank deposits, stablecoins are digital assets, but their widespread use blurs the boundary between private assets and public money, the Coindesk commentary explains. Policymakers such as the BoE and U.S. legislators behind the GENIUS Act are aware of these dangers, but there is still no comprehensive approach to tackle them, the article concludes.

As stablecoins continue to grow, there is an urgent need for broader regulatory tools—like caps on issuance, liquidity support, or crisis management mechanisms. Without such measures, MiCA could end up being remembered not for preventing crises, but for triggering the next major financial disruption, the Coindesk commentary warns.