The European Central Bank has warned that although euro stablecoins remain tiny, rapid growth could turn them into meaningful buyers of euro area sovereign debt while opening a fresh channel for market stress to spread from crypto into banks and bond markets. The European Central Bank has warned that a growing market for euro-denominated stablecoins could create new faultlines in euro area sovereign debt markets, as digital token issuers emerge as potentially significant holders of government bonds. In a chapter published in Macroprudential Bulletin, the ECB argued that wider euro stablecoin adoption would not have a uniform effect on demand for sovereign debt. Much would depend on the identity of the issuer, the composition of reserve assets and the source of the funds flowing into the tokens. […]