NAVIGATING THE FUTURE OF EU’S DIGITAL FINANCE AND OPEN FINANCIAL STRATEGIC AUTONOMY THROUGH STRATEGIC REGULATORY MANAGEMENT

Abstract

The rapid evolution of crypto assets and the underlying blockchain technology has significantly transformed global financial markets. Cryptocurrencies have demonstrated high volatility and are mainly used for speculative activities rather than financing the real economy. Stablecoins, introduced a decade ago as a stable alternative to volatile cryptocurrencies, are currently used for crypto trading and enable fast peer-to-peer and cross-border payments. With the rise of decentralised finance (DeFi), they have become essential in providing liquidity within the crypto ecosystem. However, concerns about their stability are accompanied by various potential risks of misuse.

This paper discusses the complexities surrounding crypto assets and their implications within the EU, placing particular emphasis on stablecoins. It focuses on the regulatory landscape shaped by the MiCA Regulation, which aims to harmonise the fragmented European crypto regulatory environment and address the complexities introduced by new digital financing methods. It emphasises the necessity for robust regulatory oversight to mitigate risks associated with price volatility, market manipulation, and potential misuse of digital currencies in illicit activities.

Drawing on a qualitative analysis of secondary sources, the paper argues that the EU’s MiCA Regulation provides a benchmark regulatory framework for the meticulous monitoring of operational resilience of financial sector. More specifically, it asserts theoretically that the EU is guiding the regulatory environment for European crypto assets – particularly in terms of stablecoin provisions – as a safeguard buffer for financial stability. Furthermore, the paper discusses the strategic importance of enhancing Europe’s financial autonomy in response to geopolitical tensions and the growing influence of non-European financial institutions. By advocating for a balanced approach that fosters innovation while ensuring regulatory rigor, the paper underscores the need for comprehensive frameworks that promote transparency and accountability within the digital finance ecosystem.