MiCA May Not Prevent a Stablecoin Crisis and Could Be Contributing to It

MiCA's Impact on Stablecoins: The MiCA regulation aims to bring order to the stablecoin market but may inadvertently legitimize systemic risks by assuming that proof-of-reserves equates to stability, which it does not.

Macro-Prudential Concerns: While MiCA addresses micro-prudential issues, it overlooks macro-prudential risks, such as the potential for large-scale shifts from bank deposits to stablecoins, which could destabilize traditional financial systems.

Regulatory Arbitrage Risks: Stricter regulations in one jurisdiction may push stablecoin issuers to operate offshore, creating a regulatory arbitrage loop that does not eliminate risk but merely relocates it beyond regulatory oversight.

The Fragility of Hybrid Models: Stablecoins blur the lines between private assets and public money, and their growing acceptance as legitimate financial instruments raises concerns about their systemic implications, which regulators must address comprehensively.