EU Watchdog Proposes Ban on Multi-Issuer Stablecoins
The European Systemic Risk Board (ESRB) has proposed a ban on multi-issuer stablecoins, a type of cryptocurrency. The non-binding recommendation targets stablecoins issued jointly within the EU and other jurisdictions, potentially affecting companies like Circle and Paxos.
The ESRB, a major European Union financial watchdog, approved this recommendation to mitigate systemic risks. If approved by relevant authorities, including the Federal Trade Commission (FTC) and state regulatory agencies in the US, the policy could pressure these authorities to restrict the operations of companies issuing multi-issuer stablecoins.
Stablecoins, like their name suggests, aim to maintain a stable value, often pegged to a fiat currency or a basket of assets. However, the ESRB's concern lies in the potential systemic risks posed by stablecoins issued by multiple entities. These risks could arise from a lack of clarity in governance, potential runs on the stablecoin, or contagion effects in case of a failure of one issuer.
The ESRB's recommendation, if approved, could significantly impact the stablecoin market. Companies like Circle and Paxos, which issue multi-issuer stablecoins, may face operational restrictions. The proposed ban highlights the increasing scrutiny and regulation of the cryptocurrency sector by global financial authorities.
