_FINANCIAL-OPERATIONS/
Euro-Ingenuity vs. Dollar-Genius
By Thierry Coopman · Product Specialist
Ledger
Payments
E-Money
Stablecoins
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It was already happening in the previous century, the global hype and enthusiasm around anything and everything Internet, the dot-com era, when internet-driven businesses from Webvan to Worldcom to pets.com were driving the NASDAQ ever higher.
Then the century turned, we somehow survived Y2K without any issues, and the e-commerce boom was at its biggest in early 2000.
This was the point where the European Commission, hopping on the technology wave of what people would refer to as the World Wide Web, must have been pondering e-commerce and the different technological players entering a diverse and challenging space of handling money and assets in a way that had been intended for banks and credit institutions. But remember, these were the folks struggling to avoid doom and despair with the challenges that the year 2000 brought on their systems and infrastructure.
While the traditional players—banks and credit institutions—were distracted by the after-effects of Y2K, a wild west of technological players emerged. What couldn't be tolerated (at least in Europe) was innovation that created negative experiences for consumers. Something had to be done.
The concept of electronic money (sometimes called e-money) was introduced within the European Union to address the need for a versatile, digital payment method usable across various contexts: online transactions, in-store purchases, and scenarios where traditional card payment infrastructure would be too expensive or impractical, such as micro-payments. Electronic money was imagined as a digital surrogate for coins and banknotes that can be stored electronically, used for payments, and be accepted by entities other than the issuer. This innovation allowed consumers to load funds into what is called a stored value account, creating a digital wallet with electronic change for payments of various sizes. It was particularly useful for smaller transactions that might otherwise incur disproportionate processing fees through conventional payment channels.
So there in September 2000, the European Parliament took decisive action and formally voted on the directive 2000/46/EC, also commonly known as the EMD1, the first electronic money Directive. EMD1 created the initial regulatory framework for electronic money Institutions.
The EU has been methodically and deliberately moving this regulatory framework forward ever since. In 2009, the EU introduced EMD2 (the second Electronic Money Directive) which refined the original concepts and made them more accessible to a broader range of financial institutions. Then in 2015 the EU delivered PSD2 (Payment Services Directive 2), which brought about enhanced security requirements, opened up banking APIs, and fostered innovation in the financial services sector. Most recently, recognizing the emerging importance cryptocurrencies, the EU introduced the Markets in Crypto-Assets Regulation (MiCAR) in 2023, which aimed to provide legal certainty, support innovation, protect consumers, and ensure financial stability in the rapidly evolving world of digital currencies and blockchain technology involving e-money tokens.
In the meantime, in small corners of the internet, Web3—based largely on Ethereum—was starting to come together in U.S.-based technology circles.
These decentralized blockchain and token based technologies were being tested and built in public as the world was moving into the era where people considered Internet connectivity as a basic utility like electricity or running water.
The U.S. similarly recognized that the traditional banks and financial institutions were being held back and struggling to meet the demand of a very dynamic and innovative space around Financial Services, where people were looking to regain control after the industry melt-down in 2008. This gave a big boost to entrepreneurship, and introduced a myriad of use cases and applications for Web3.
Payment stablecoins were one particularly interesting Web3 application to emerge from this context. Payment stablecoins are a blockchain-based token whose value is pegged to a fiat currency, typically the U.S. dollar. However, this pegging was largely theoretical, as early stablecoins were not backed by equivalent amounts of the underlying currency. The move-fast-and-break-things mentality driving such innovation meant that the tech players struggled to find the right balance that would introduce the trust and reliability needed for the markets to operate correctly. As these were meant to take the place of the fiat currency in transactions, some form of “checks and balances” or regulation was necessary.
In June 2025, the U.S. Congress passed the GENIUS Act, a regulation similar to what the EU did 25 years earlier, which introduced the concept and regulation of payment stablecoins. A payment stablecoin is a token issued on a public blockchain pegged to the U.S. Dollar, and for which issuers are required to ensure each token issued is backed by an equivalent amount of currency in the issuers treasury at a deposit institution. Only licensed companies or institutions are permitted to issue payment stablecoins, and they are subject to certain regulations to ensure the liquidity of the issued payment stablecoins.
Both payment stablecoins and e-money are designed as digital surrogates for fiat currency, with the same liquidity and stability. There are some obvious similarities, but they are implemented and regulated rather differently.
In the context of financial regulation, both e-money and payment stablecoins are very similar. They both must maintain a one-to-one value ratio with the underlying fiat currency (being "at par") and offer redemption at this same ratio. Both financial instruments require adequate liquidity and clearly defined redemption policies. Their issuance necessarily depends on established Banks or Deposit Institutions.
Companies handling e-money or payment stablecoins are considered non-bank financial institutions, and are subject to regulation. These regulatory frameworks strictly prohibit the mixing of company funds (or equity) with third-party funds, establishing a clear separation between operational capital and customer assets. Despite this separation requirement, regulations do permit the use of omnibus accounts—single accounts that collectively hold the cash assets of all customers—as an acceptable management structure.
There are some important differences though.
The EU has with a history of EMD1, EMD2, PSD1, PSD2 and the up and coming PSR/PSD3 frameworks where e-money is handled like financial institutions, hence issuers need to comply with regulations over corporate governance. This allows some oversight within a setup of the classic European three lines of defense—the operational, sales, and product teams are the first line; compliance, risk, and internal audit are the second line; and an independent external auditor is third line. This is a much stricter degree of oversight than is required in the U.S.
The GENUIS act in the U.S., in contrast requires only a monthly certification by a registered certified public accounting firm to ensure that the outstanding payment stablecoins and the related reserves held by the issuer are in balance.
In short: Yes. Generally a payment stablecoin will be made available on a public ledger—the underlying blockchain—as they are issued. A very popular choice is the ECR-20 on Ethereum, and that makes it accessible for use in all kinds of use cases and opportunities.
But, an account-based ledger such as Formance is a necessary bookkeeping tool needed for both the issued e-money and payment stablecoins in balance with the deposits that are representing the issued tokens—your deposits are your assets, your issued tokens are your liabilities.
Even so, these books need to be validated and certified once a month in the U.S. The only requirement is that the total issued stablecoins match the liquidity at hand—and this can only be proven using a central (off-chain) ledger maintained by the issuer.
For e-money, the regulation is a bit different and more strict. E-money issued must be accounted for within one business day of receiving the funds in a stored value account. MiCAR goes further, and requires that the e-money issuer must track the total amount of e-money in circulation in real-time. Again, this regulation can only be satisfied with a central ledger.
In both cases an issuer (whether payment stablecoin or e-money) must use a deposit institution or a bank as a correspondent—that is, the issuer must maintain an bank or deposit account whose value corresponds with the payment stablecoin or e-money in circulation. The assets on the deposit accounts in balance with the liabilities in the issued payment stablecoins or e-money will be easy to prove on the ledger.
From an e-money perspective, each account holder could have their own account on the ledger, whereas the stablecoin could have a representation of the issued stablecoin emitted on the different blockchains, like Ethereum, Solana, Base, Hedera, etc., where due to the nature of these distributed systems they are not otherwise tracked in a central ledger.
Formance, as a toolkit for building bespoke financial infrastructure, is the natural choice for building these correspondence ledgers, because its flexibility is well suited for the creation of tooling to track value across funds in deposit accounts and digital surrogates that represent those funds. One could even issue multiple different payment stablecoins or e-money tokens managed by the same company, using a single ledger.
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