EU Regulators Shockingly Target Dollar Stablecoins Circle and Paxos

EU regulators are reportedly preparing to crack down on major U.S.-based dollar stablecoin issuers, Circle and Paxos, by threatening bans or stricter restrictions over concerns that redemption demands could overwhelm European reserves. The move, pushed by the , aims to control what regulators view as vulnerabilities tied to multi-jurisdiction issuance models.

The shock is not just in the unprecedented regulatory targeting, but in the timing. At a moment when stablecoins are gaining broader acceptance in global payments, (DeFi), and institutional capital flows, the EU’s hard line sends a signal that even “stable” digital dollars are not exempt from scrutiny.

The Stablecoin Crackdown: What Regulators Demand

The heart of the crackdown centers on multi-issuance stablecoins. These are structured in a way that allows the identical token to be issued and redeemed across both EU and non-EU jurisdictions, often backed by reserves held outside the bloc. Regulators warn that during market stress, investors might rush to redeem in the EU, exhausting local reserves while foreign-held reserves remain inaccessible.

To fix this, the European Systemic Risk Board (ESRB) is pushing for strict new rules, or even outright bans, on this kind of setup. They argue it creates large risks around liquidity (whether there’s enough cash available), stability, and legal enforcement. The European Central Bank (ECB) also supports this tougher stance, pointing to financial securety as the reason.

For Circle and Paxos with affected stablecoins like USD Coin (USDC) and , this means they may be forced to change how their stablecoins work in Europe. Possible rules could require them to keep separate reserves inside the EU just to serve European customers, or even stop offering tokens in Europe if all the reserves remain outside the region. 

A New Era of Stablecoin Regulation May Be Here 

This move is jarring not simply because it targets stablecoins, but because it turns the tables on issuers that many in the industry assumed enjoyed relatively friendlier laws. The EU is signaling that not even stablecoin is above scrutiny.

To date, regulation around stablecoins has largely focused on transparency, reserve audits, and operational secureguards. This escalation toward banning issuance models based on redemption risk is far more aggressive. It underscores regulators’ concern that stablecoins, though pegged, may behave like bank deposits under stress.

Moreover, this development comes at a moment when global regulatory sentiment has been trending more favorable to stablecoins — looking to integrate them into payment rails, tokenized finance frameworks, and institutional products. That such proposals emerge now is a stark reminder that regulatory embrace is conditional. If the EU enacts bans or forced structural changes, stablecoin issuers may be forced to rethink how they allocate reserves. We may view fragmentation: a “USDC-EU version,” or alternatives gaining traction within Europe. It also may embolden other jurisdictions to impose stricter regulatory policies.