Stablecoins denominated in US dollars have attracted considerable attention in the context of their growing influence in US Treasury markets. However, the potential effects of euro-denominated stablecoins on euro area sovereign debt markets have been underexplored, partly owing to their currently limited market presence. This article explores how the growth of euro-denominated stablecoins could affect euro area sovereign bond markets, beginning with a pass-through rate that measures the extent to which sovereign bond holdings are influenced—either directly or indirectly—by stablecoin demand. The pass-through rate depends on whether stablecoins are issued by banks or e-money institutions (EMIs), on the composition of stablecoin reserve assets, and on the liquidity management preferences of banks and EMIs.
Second, we explain that the impact of stablecoin adoption on sovereign bond demand does not only depend on this pass-through rate, but also on the sectoral origins of stablecoin inflows linked to use cases and possible offsetting effects from reallocations across sectors. We then consider how large stablecoins with significant holdings of euro area sovereign debt would increase the interlinkages between the crypto-asset ecosystem and traditional finance, amplifying potential spillover risk during crises. The Regulation requires such stablecoin issuers to hold at least 30% (60% for significant issuers) of their reserve assets with credit institutions, while the remainder must consist of low-risk highly liquid instruments, such as sovereign bonds. As of January 2026, euro-denominated stablecoins have a modest market capitalisation of around €450 million, far smaller than the USD-denominated market; MiCAR guardrails, fully implemented by the end of 2024, may have already contributed to increasing demand for euro-denominated stablecoins.
One major EU bank is already issuing a stablecoin, and twelve other large EU banks have formed a consortium to launch a shared euro-denominated stablecoin. These private-sector projects will be supported by Eurosystem initiatives to enable new technologies for wholesale central bank money settlement and to provide a trusted public settlement asset in tokenised form in euro. Under MiCAR, euro-denominated stablecoins can be issued by a credit institution or an EMI, with prudential requirements differing by issuer type and affecting the pass-through rate to sovereign bonds. The balance sheet model applies when banks back their EMT liabilities with their entire balance sheet, while if a bank uses a subsidiary holding an EMI licence to issue a stablecoin, the subsidiary must use the asset-backed model. For EMI-issued stablecoins, reserve assets could include sovereign bonds, with the EMI-held scenario assumed to be backed 100% by bank deposits.
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