Stablecoins have become increasingly central to the crypto-asset ecosystem, serving as a bridge between traditional fiat currencies and digital assets. Initially used primarily for trading on crypto exchanges, stablecoins are now gaining traction as a potential medium for cross-border payments and everyday payment transactions. With the implementation of the EU’s Markets in Crypto-Assets Regulation (“MiCAR”) now completed, the regulatory landscape for stablecoins has fundamentally changed. This article examines what stablecoins are, how they operate, and the regulatory framework governing them in across Europe, including in Ireland.
What is a Stablecoin?
A stablecoin is a form of cryptocurrency which has its value ‘pegged’ to the value of another currency, commodity, asset or group of same. The purpose of a stablecoin is to provide an exchangeable crypto-asset that maintains a relatively stable value commensurate to the value of the underlying currency, commodity or asset. Some of the more well known stablecoins include “USDC”, “USDT”, both of which, as their names suggest, have their value pegged to the US Dollar. Other non-fiat stablecoins such as “Tether Gold” are pegged to the value of gold.
In recent times, stablecoins have been seen as providing investors with an alternative to more traditional crypto holdings such as Bitcoin or Ethereum, which are crypto-assets associated with typically higher volatility. Currently, stablecoins are traded across a variety of crypto exchanges and provide investors with a quick and easy way to invest on platforms and exchanges without having to convert their holdings from traditional cryptocurrencies back into fiat currency. However, stablecoins have evolved beyond their original use as trading pairs on cryptocurrency exchanges and are increasingly being deployed for practical commercial purposes.
Cross-border payments and remittances: Stablecoins have potential to enable near-instantaneous settlement of international payments without the delays, multiple intermediaries, and foreign exchange costs associated with traditional correspondent banking networks. Businesses are increasingly using stablecoins to pay suppliers, employees, and service providers internationally, particularly in jurisdictions with limited banking infrastructure or restrictive capital controls.
Merchant acquiring: Payment service providers are beginning to integrate stablecoin acceptance into merchant acquiring solutions, allowing merchants to accept stablecoin payments alongside traditional card payments. This offers potential advantages including reduced transaction fees (compared to card interchange fees), faster settlement times, and elimination of chargeback risks, though regulatory and accounting treatment remains complex.
These emerging use cases have heightened regulatory interest in stablecoins, driving the development of comprehensive legal frameworks such as MiCAR to ensure consumer protection and financial stability as stablecoins transition from crypto-native applications to mainstream payment instruments.
1 How can a stablecoin’s value be ‘Pegged’?
To achieve a stable value, stablecoins must be ‘pegged’ to an underlying currency or asset. There are a number of distinct ways in which this can be achieved.
1.1 Fiat-collateralised tokens
These are stablecoins backed by a national fiat currency which is used as an off-chain reserve asset in order to back the value of the stablecoin. Reserve currency such as EUR or USD would be held 1:1 to the number of corresponding stablecoins in issue. This reserve currency is usually held with third party custodians and / or banks. The central controlling entity would issue new stablecoins / destroy an amount in issue to ensure that the stablecoin value retains its peg to the underlying fiat currency.
1.2 Crypto-collateralised tokens
These stablecoins operate in a similar way to fiat collateralised stablecoins, however instead of fiat currency, cryptocurrencies are held in reserve as collateral in order to ensure that the stablecoin retains its peg.
1.3 Asset / commodity collateralised tokens
As with crypto-collateralised, these stablecoins operate by holding a reserve of one or more commodities or assets such as gold in order for the stablecoin to retain its peg to the corresponding asset / commodity or group of same.
1.4 Non-collateralised (“algorithmic”) tokens
These stablecoins represent some of the most complex stablecoins and do not rely on a reserve asset or pool of assets as collateral. Instead, they rely on centrally developed algorithms to retain their peg to the corresponding fiat currency, cryptocurrency, commodity or asset. As these kind of stablecoins dispense with the need for considerable underlying capital, they rely heavily instead on consumer confidence and are at an increased risk of sudden devaluation and even collapse when compared to other forms of stablecoins.
2. Characterisation of Stablecoins in European Law
In European law, stablecoins may take the form of either an electronic money token (“EMT”) or an asset-referenced token “ART”) as defined in Titles IV and V of the Markets in Crypto-Assets Regulation (“MiCAR”). MiCAR was enacted in 2023 and became fully applicable on 30 December 2024. However, transitional provisions allowed issuers of EMTs that were lawfully issued before 30 June 2024 to continue their activities until 1 July 2025, provided they notified their competent authority and submitted an application for authorisation under MiCAR within 18 months of that date. Since MiCAR has direct effect in Ireland, it is also now the sole main legislative reference when assessing the regulation of stablecoins in Irish law.
2.1 Electronic Money Tokens
EMTs are defined under Article 3(7) MiCAR as “a type of crypto-asset that purports to maintain a stable value by referencing the value of one official currency”. An “official currency” need not exclusively be an EU Member State currency and could extend to non-EU currencies like USD. Under Title IV of MiCAR, only electronic money institutions or credit institutions can be authorised to issue EMTs in the EEA region.
There are several EMTs which are pegged to the Euro available on the market, namely EURS (issued by Statis), EURC (issued by Circle). At time of writing however, the vast majority of EMTs in circulation globally and within the EU are those pegged to USD.
Note that EMTs may only reference one official currency; where EMTs purport to reference multiple official currencies, these will be considered a form of ART.
The European Banking Authority (“EBA”) has opined on the interaction between MiCAR and the Payment Services Directive (“PSD2”) in respect of EMTs.
One drawback to note is that MiCAR does not differentiate between EMTs issued solely within the EEA and those issued globally. Article 38 of MiCAR requires that issuers of EMTs maintain reserve assets covering at least the aggregate amount of EMTs in circulation, without distinguishing between tokens held by EEA residents and those held globally. This extraterritorial approach raises practical challenges for major global stablecoin issuers, which have significant global circulation but may seek to offer their tokens to EU investors. A major challenge for those issuers to date has been determining whether their entire reserve structure needs to comply with MiCAR requirements, including the composition, custody, and safeguarding provisions set out in Articles 36-38, regardless of where their tokens are held or traded.
2.2 Asset-Referenced Tokens
ARTs are defined under Article 3(6) MiCAR as “a type of crypto-asset that is not an electronic money token and that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies”.
While the definition of ARTs is much broader than that of EMTs, as of February 2026 no ARTs have been authorised or issued under Title III of MiCAR.
This is because the regulatory requirements for ARTs are considerably more demanding than those for EMTs, particularly regarding reserve asset composition for multi-asset reference baskets. There are also particularly stringent requirements whenever an ART is considered a “significant ART” and so could pose systemic risk. Arguably these legal features make seeking authorisation under the ART regime in MiCAR commercially unattractive. Given the existing dominance of fiat-collateralised EMTs in the EU stablecoin market and the additional regulatory burden associated with ARTs, it remains to be seen whether the ART framework as currently designed under MiCAR will attract significant market uptake.
2.3 Prohibition of certain kinds of stablecoins in EU law
ESMA guidance published on 17 January 2025 clarified that crypto-asset service providers (“CASPs”) authorised under MiCAR must ensure that any stablecoins they admit to trading, or facilitate exchanges of, comply with MiCAR requirements. CASPs could not rely solely on issuer representations and were obliged to conduct appropriate due diligence to verify that issuers of EMTs and ARTs have been properly authorised before offering services in the EU in relation to those crypto-assets. The practical consequence of this ESMA guidance has ensured that only those stablecoins which have a MiCAR compliant issuer remain listed in the EU market as of 2026.
MiCAR also formally prohibited the issuance and offering of algorithmic or non-collateralised stablecoins within the EU. Article 43 of MiCAR requires that all ARTs must benefit from stabilisation mechanisms, including maintaining a reserve of assets. This requirement means that stablecoins relying purely on algorithmic mechanisms without reserve assets cannot be lawfully offered to the public or admitted to trading in the EU.
This prohibition reflects regulatory concerns about:
- Consumer protection risks: The high-profile collapse of Terra USD in May 2022 demonstrated that algorithmic stablecoins can rapidly lose their peg, resulting in substantial investor losses;
- Financial stability: Large-scale algorithmic stablecoins could pose systemic risks if they break their peg; and
- Market integrity: The reliance on market confidence alone, without tangible reserves, creates heightened volatility risks.
The prohibition applies regardless of whether the algorithmic stablecoin references a single fiat currency, multiple currencies, commodities, or other crypto-assets. Any stablecoin seeking to operate in the EU market must maintain adequate reserve assets in accordance with MiCAR’s requirements.
The EU Position here is not unusual and increasingly is being followed by other regions such as the UK and USA. Increasingly regulators in other regions are focusing on regulating fiat-backed stablecoins being used for payments and so requiring robust reserve backing. These features are likely to make algorithmic stablecoins unattractive in many of the world’s leading economies.
3. What are Stablecoins used for?
3.1 The dual regulation of EMTs under MiCAR and PSD2
There is an interaction between MiCAR and Payment Services Directive (EU) 2015/2366 (“PSD2”) in respect of EMTs. In an opinion issued on 10 June 2025, the EBA recognised an overlap between crypto-asset services provided by CASPs under MiCAR and payment services under PSD2 in respect of certain services relating to EMTs. This is because, pursuant to Article 48(2) of MiCAR, “e-money tokens shall be deemed to be electronic money” and therefore fall within the definition of ‘funds’ under Article 4(25) of PSD2. The consequence of this overlap is that most CASPs that are providing services in respect of EMTs (which encompasses nearly all CASPs) will be required to obtain a top-up authorisation to provide payment services under PSD2 from March 2026 onwards.
While the EBA opinion suggests that CASPs dealing with EMTs purely for the exchange of other crypto-assets or for funds will be exempt from the additional PSD2 requirements, the scope of this exemption has been significantly narrowed as the EBA opinion makes clear that transfers of EMTs in exchange for fiat currency between the user’s own crypto-wallet and bank account (“first person transfers”) are caught under PSD2. In practice, this means that most CASPs dealing with EMTs will be required to obtain the PSD2 top-up authorisation. We understand that almost 100 of the 150 crypto-asset service providers authorised in the EEA as of February 2026 are now contemplating dual authorisation under PSD2 and MiCAR owing to this issue.
While the CBI has introduced a simplified application process for top-up authorisation, there are additional prudential and conduct requirements attached that the CASPs must comply with going forward (e.g. strong customer authentication of wallets, fraud reporting requirements, cumulative own funds calculations, safeguarding, disclosure requirements, execution rules, etc).
EU Financial Sanctions and Stablecoins
The EU’s 19th sanctions package against Russia (enacted in October 2025) included targeted measures against A7A5, a rouble-backed stablecoin that has processed over USD $100 billion in transactions, primarily facilitating cross-border payments for Russian entities seeking to circumvent international sanctions. The A7A5 case illuminates both the strategic importance of stablecoins for cross-border payments and the EU’s increasingly assertive approach to extending sanctions enforcement into non-traditional financial services.
This approach is already evolving further, with the EU now proposing to implement an outright ban on all cryptocurrency transactions involving Russia, as part of the 20th sanctions package. The proposed ban comes as a response to concerns that already-sanctioned entities can easily be rebranded or replaced to circumvent sanctions, and demonstrates an eagerness on the part of the EU to move from the targeting of specific entities towards system-level restrictions.
The A7A5 Stablecoin
Unlike mainstream stablecoins pegged to USD or EUR, A7A5 is backed by Russian roubles and emerged specifically to facilitate cross-border transactions for entities unable to access traditional correspondent banking channels due to international sanctions. Operating primarily through crypto-asset service providers in Russia-aligned central Asian jurisdictions, including Kyrgyzstan, A7A5 enabled Russian businesses to make international supplier payments, conduct remittances, and settle commercial obligations whilst bypassing the SWIFT network and traditional financial intermediaries subject to Western sanctions.
The scale is remarkable: some commentary indicated that A7A5 processed over $100 billion in transaction volume, demonstrating that stablecoins are no longer peripheral instruments confined to crypto-trading but have evolved into genuine alternative payment rails capable of supporting substantial commercial activity. The EU’s decision to target A7A5 operations in its financial sanctions law illustrates two critical regulatory developments in EU law.
First, it confirms the practical importance of stablecoins for cross-border payments. The fact that sanctioned entities invested resources in developing a rouble-backed stablecoin infrastructure—and that this infrastructure processed tens of billions in transactions—demonstrates that stablecoins offer genuine utility for international value transfer, particularly where traditional banking channels are unavailable or cost-prohibitive. This validates the commercial case for stablecoin adoption whilst simultaneously highlighting regulatory concerns about their use.
Second, it marks the EU’s willingness to extend traditional sanctions methodologies into the crypto-asset sector. Historically, EU sanctions focused on banks, payment service providers, and other traditional financial institutions. The targeting of crypto-asset service providers facilitating A7A5 transactions represents a significant expansion of sanctions enforcement, reflecting regulatory recognition that crypto-assets can replicate the cross-border payment functions that conventional sanctions seek to control. It also builds on the fact that CASPs operating under MiCAR are now simply an accepted and fully regulated part of the EU’s regulated financial services industry.
4. Developing regulatory attitude to stablecoins
At the time of MiCAR’s enactment, many in Europe were concerned that a very successful stablecoin could replace fiat currencies as a means of payment and/or threaten their role in terms of ensuring financial stability and regulating the money supply in the real economy. There was also a concern around the risks posed by algorithmic stablecoins. For this reason, MiCAR established bespoke rules in respect of stablecoins designed to prevent the emergence of an unregulated parallel economy in stablecoins.
Then once MiCAR took effect in early 2025, the ESMA took steps to ensure that only those EMTs and ARTs that comply with MiCAR’s requirements could remain in circulation in the EU. This was achieved by policing those firms seeking to become authorised as CASPs under Title V of MiCAR during the transition period and brought about a delisting of non-compliant stablecoins in the EU region.
However, regulatory attitudes continue to evolve as the market matures. The implementation of MiCAR demonstrates a more nuanced approach, seeking to balance innovation with prudential safeguards. European authorities remain focused on ensuring that stablecoin issuers maintain adequate reserves, implement robust governance, and protect consumer interests whilst not stifling legitimate innovation. EU CASPs facilitating transactions in stablecoins must also now be cognisant of the fact they can qualify as both crypto-assets and as funds, and that increasingly their use-cases are broadening into a new means of payment with usage in the real economy.
The obvious growth area ahead is for EUR-denominated stablecoins to grow and attempt to counter the dominance of stablecoins denominated in USD, though whether any European initiative to reduce the dominance of the major global players in stablecoin issuing can be successfully counteracted remains to be seen.
A number of private sector initiatives by EU credit institutions are underway to launch a euro-denominated stablecoin. Steps are also being taken by the European Central Bank to accelerate plans for the launch of a digital euro on a public blockchain in an attempt to protect the EU’s single currency’s dominance across Europe, but this legislation remains subject to finalisation at political level by the EU Council and EU Parliament.
5. Conclusion
The growing adoption and ongoing innovation in respect of cryptocurrency and blockchain technology continues to give rise to distinct legal and regulatory uncertainty. Companies dealing in stablecoins should make themselves aware of the regulatory requirements in Ireland and should ensure that all consideration is given to the need for regulatory authorisation and oversight. Furthermore, where a person / entity is dealing in or issuing a stablecoin, any such stablecoin would need to be assessed against each of the regulatory frameworks discussed above in order to determine any and all implications from a legal and regulatory perspective.
If you have any queries or would like to discuss any of the points made in this update, please get in touch with Joe Beashel, Ian O’Mara, Kevin Burns, or your usual Matheson Financial Institution Group contact.