Stablecoins: A Threat to the Digital Euro?

The difference therefore lies not only in the issuer, but also in the underlying infrastructure. Stablecoins function less as a standalone means of payment in the traditional sense, and more as a digital settlement layer. Their stability depends on the quality, liquidity, and availability of the held reserves. This means that — unlike central bank money — a counterparty risk to the issuer remains.

In everyday European payment transactions, stablecoins so far play only a very limited role. At the same time, interest in their potential payment functions is growing, particularly with regard to efficiency, programmability, and cross-border use cases. Against this background, the central question of this article arises: What problem are stablecoins actually trying to solve today — and how do they relate to the digital euro?

The political relevance of stablecoins extends far beyond questions of technical efficiency. The market today is clearly dominated by U.S. dollar-denominated stablecoins. While the US has so far been cautious about state-issued central bank digital currencies, privately issued stablecoins could effectively represent a market-driven digital extension of the dollar. Regulatory initiatives aim not only at consumer protection and financial stability, but also at the deeper integration of these instruments into the regulated financial market.

Added to this is the reserve architecture of many large stablecoins, such as USDC. If these are predominantly backed by short-term, safe dollar assets such as U.S. Treasury bonds, a growing stablecoin market could indirectly also support demand for American government securities. Stablecoins are thus not only an innovation phenomenon in payments, but potentially also a geopolitical infrastructure issue.

In this context, the risk of digital dollarisation is regularly discussed for Europe. In broad everyday payment transactions, this scenario still appears limited for now, as stablecoins have so far been used mainly in specific digital ecosystems. Nevertheless, the fundamental question remains relevant as to whether payment flows will gradually align more strongly with privately issued, dollar-based infrastructures.

At the same time, regulation significantly changes the profile of stablecoins. Regulatory frameworks such as MiCA increase transparency, reserve quality, and market confidence, but also create additional requirements for capital, governance, compliance, and reporting. Stability is therefore not achievable without cost: the more stablecoins are brought closer to the traditional financial sector through regulation, the higher the operational demands on issuers and infrastructure operators.

This highlights a fundamental difference from the digital euro. While stablecoins need to be stabilized through regulation, the digital euro, as central bank money, is structurally anchored differently. It carries no classic issuer risk and would be more politically controlled, but also less open to market-driven innovation. The political and regulatory design therefore determines to a significant extent how both models position themselves in the market.

Added to this is the question of European sovereignty. Even if stablecoin initiatives initially emerge from within Europe, their long-term control is not automatically assured. Ownership structures, equity stakes or later acquisitions can shift influence over critical infrastructures. From a European perspective, therefore, the issue is not only about efficiency and innovation, but also about who controls digital payment infrastructure and in whose strategic interest it is operated.

Whether stablecoins represent a genuine threat to the digital euro is determined not solely by their political classification but also by market logic and technical design. Stablecoins are already available today, can be integrated into existing blockchain ecosystems, and are functionally established in certain digital application areas. The digital euro, by contrast, is still in the conceptualization and preparation phase and would, if at all, only enter the market at a later point in time.

This creates a potential first-mover advantage. In payments, early availability can generate network effects, particularly when a solution is already embedded in existing applications, wallets and platforms. This lead does not, however, automatically translate into widespread adoption in everyday European payment transactions. There, acceptance continues to depend on cost, user experience, regulatory embedding and concrete added value. The digital euro could partially offset this disadvantage if its acceptance is made mandatory by regulation and it is perceived not merely as a new means of payment but as a public base infrastructure.

The real differentiation between stablecoins and the digital euro, however, lies deeper: in architecture, finality, programmability, custody model and resilience. Only at this level does it become visible in which areas stablecoins are technologically ahead today, and in which points the digital euro would have structural advantages.

The most relevant stablecoins in the European context are MiCA-regulated EUR-denominated tokens such as EURC, EURe, EURI and EURCV, as well as actors from the significantly larger USD market such as USDC and USDT. Technically, these tokens are typically issued on public or semi-public blockchain networks, frequently based on the ERC-20 standard.

The digital euro would, by contrast, follow a two-tier model: the ECB issues, and licensed intermediaries handle distribution and wallet management. The infrastructure would be connected to TIPS. There would be no open token standard, no public smart contract layer and no permissionless issuance. The difference is fundamental: the mint and burn operations of a stablecoin are in principle traceable on the blockchain, whereas the corresponding processes of the digital euro would take place within a regulated, access-restricted infrastructure. This means: for stablecoins, the technical issuance and redemption logic is in principle publicly visible; for the digital euro, it would only be visible to the authorised actors within the system.

A central difference between stablecoins and the digital euro lies in the quality of settlement. On public blockchain networks, finality is not in every case immediately and legally unambiguous. On Ethereum, a transaction is only considered sufficiently secured after several confirmation steps. Layer-2 networks such as Arbitrum, Base, or Optimism enable very fast transaction confirmations, but still rely on the underlying main infrastructure for final settlement. Other networks such as Solana operate with very short block times but have demonstrated in the past that high speed does not automatically coincide with consistently stable availability.

The digital euro would be embedded in an infrastructure designed for legally assured finality in central bank money by contrast. Through the ECB’s TIPS infrastructure, a very fast and at the same time clearly secured settlement could be achieved. For merchants and payment service providers, this is not merely a question of speed, but also of reliability: the difference between a technically fast confirmation and a legally final settlement is significant for market-ready payment infrastructure. The advantage lies in greater reliability: payments would not only be technically visible, but legally unambiguously final. The disadvantage lies in the lesser openness of the system, since such settlement is typically associated with stronger institutional control and less flexibility than in public blockchain networks.

A key advantage of stablecoins lies in their embedding in programmable blockchain environments. They can be linked directly with smart contracts, wallet logic and other applications, for example for escrow models, automated disbursements or token-based financial applications. This openness already enables a broad spectrum of digital payment and financial logics today.

The digital euro pursues a more restrictive approach by contrast. While conditional payments are being discussed, an open smart contract platform in the core system is not. The ECB thus prioritizes stability, controllability and data protection over open programmability, without categorically excluding this. This makes the digital euro in its current design generally less flexibly deployable for freely configurable, automated payment logic than stablecoins in public blockchain environments.

Stablecoins can be held both in self-custody and via intermediaries. This openness increases autonomy and portability, but also shifts risks onto the user, for example in the case of key loss, phishing or faulty smart contract interactions. The digital euro, by contrast, would be embedded in a supervised intermediary model that strengthens recoverability and regulatory control but offers less user sovereignty.

There is also a structural difference regarding holding limits and resilience. Limits are being discussed for the digital euro to contain deposit outflows from the banking system. Stablecoins generally do not have such user-related caps. Conversely, the digital euro would have a resilience advantage, with a potential offline capability that today’s blockchain-based stablecoins cannot replicate in a comparable way, as they depend on continuous connectivity.

A frequently cited advantage of stablecoins lies in their suitability for cross-border payments. However, this advantage is smaller than an isolated look at on-chain fees would suggest. What is decisive is not only the cost of the transfer on the blockchain but the entire value chain of on-ramp, off-ramp, foreign currency conversion, local liquidity, and regulatory compliance.

For a realistic assessment of cross-border payments, focusing on low on-chain costs8 is therefore not sufficient. What matters are the total costs along the entire process chain — from conversion into the stablecoin through network and transaction fees to the return to locally usable money at the destination. The following overview illustrates this with a simplified example, since the greatest frictional loss arises not on the blockchain itself, but where digital token money has to be converted back into locally usable fiat money.

These include, first, the on-ramp costs for converting fiat euros into a EUR stablecoin at a regulated provider. Second, network and gas fees arise, which can vary significantly depending on the blockchain. Third, off-ramp costs arise, which represent the greatest bottleneck in many non-EU corridors. Added to this are, fourth, remaining FX spreads when converting into the local target currency, and fifth, regulatory requirements such as KYC, AML, and Travel Rule processes at both ends of the transaction.

Example: 1,000 euros form Germany (EUR) to Morocco (MAD)

Traditioneller Transfer:

• SEPA / Bank transfer: usually low or no outbound fee

• EUR/MAD exchange: typically the largest cost block

• Possible recipient fee

• Total cost: often around 30-35 euros

• Processing time: usually 1-3 business days

EUR-Stablecoin transfer:

• On-Ramp EUR -> EURC: low fee

• On-Chain-Transfer: almost nigligible costs

• Off-Ramp in Morocco: limited EUR liquidity, often requiring a workaround via USD stablecoins

• Additional FX spreads and operation friction

• Total cost: often around 30-40 euros

• Processing time: technically faster but heavily dependent on the off-ramp

The cost advantage of the stablecoin transfer is not decided on the blockchain, but at the off-ramp into the local currency!

The central insight is therefore: it is not the blockchain transfer that is the dominant cost block but the ability to make value available again at the destination in a liquid, compliant, and market-competitive manner. Particularly outside the EU, the cost advantage of EUR stablecoins often shrinks considerably, because direct liquidity in the target currency is lacking and additional intermediate steps become necessary. In some corridors, specialized money transfer providers therefore currently remain superior both in pricing and in user experience. A similar fundamental problem arises for the digital euro outside the euro area: as long as no cross-border linked CBDC infrastructure exists, the conversion into locally usable money remains the real challenge there too.

On- and off-ramp layers are arguably more complex than the corresponding banking chains they are intended to replace. A compliant on-ramp requires a verified account with a licensed VASP, a SEPA-enabled bank account and digital competence to manage wallet addresses. Under MiCA, EU VASPs must maintain AML/CFT programs and comply with the Travel Rule above certain thresholds. Compliant ramps are therefore by no means frictionless in operational terms, but are, in significant respects, confronted with similar compliance requirements as classical payment service providers.

The off-ramp is more severe: in most destination countries for remittances, EURC and EURe have virtually no direct liquidity. Recipients therefore frequently have to first switch via DEX or OTC structures into USDT or USDC before a disbursement in local fiat money is possible. It is precisely at this point that those costs return which stablecoins were actually meant to reduce: additional spreads, FX costs, and operational complexity. This is the last-mile liquidity problem: The EUR stablecoin network is globally efficient; the fiat exit infrastructure at the destination is not.

The MiCA volume caps for non-EUR EMTs (USDC, USDT) should gradually incentivize EUR-denominated alternatives, but this transition is occurring corridor by corridor and is not yet reflected in the current market structure.

The cross-border gap in the current design of the digital euro is acknowledged by the ECB and the BIS, and there are active research programs addressing this. The most promising technical approaches follow a linking model rather than a single global ledger.

Projects such as “BIS Icebreaker” demonstrate that cross-border payments between different CBDC systems can in principle be designed so that national sovereignty is maintained while coordinated settlement remains possible. For the digital euro, this would in the long term represent a potential pathway to supporting cross-border payments with high legal finality, central bank-adjacent settlement, and European data protection standards.

In the short term, however, this is more of a prospect for later development phases than a real market advantage. For the initial rollout phase, the digital euro remains primarily oriented toward the euro area, while stablecoins already circulate in global networks today.

Stablecoins and the digital euro do not stand in a simple competitive relationship. Stablecoins are today closer to the market, more programmable, and can be integrated into digital ecosystems. The digital euro, by contrast, would be more strongly anchored institutionally and would have structural advantages in finality, resilience, and public control and security. Both models thus address not identical but partly different requirements for digital payment infrastructure.

For banks and PSPs, the strategic question therefore shifts from a simple either-or toward the future role of digital currencies in the system. Relevant positions range from issuance, reserve holding and custody to wallets, interfaces, on- and off-ramps and the integration of tokenised payment forms into existing processes.

For end customers, concrete utility is what matters most. Whether bank money, stablecoins, Wero or, in the future, a digital euro is used in the background is likely to be of secondary importance in many cases. What is decisive is speed, cost, acceptance, security and simplicity. In the long run, therefore, it is not necessarily the most technologically open or politically strongest infrastructure that prevails, but the one that best solves a concrete payment problem.