Europe’s digital-asset sector continues to develop across financial markets, payments, and regulation, with several developments this week underscoring the increasingly intertwined relationship between digital assets and the traditional financial system.
A European Central Bank (ECB) study has examined how decentralized finance (DeFi) lending rates respond to monetary policy, just as the bank calls for merchants to participate in its digital euro pilot. Meanwhile, new European Union cybersecurity reporting rules have begun applying to products with digital elements, including some digital asset wallets.
Dueling influences on DeFi lending rates
A new study from the ECB has found that DeFi lending rates are influenced by the forces of traditional monetary policy and the digital asset market’s appetite for leverage, with the latter able to temporarily overwhelm the former.
Stablecoins such as USDC and USDT do not normally pay interest to holders, but users can deposit them into DeFi lending protocols such as Aave and earn variable yields, making DeFi lending rates broadly comparable to short-term interest rates in traditional finance (TradFi).
The study expected DeFi rates to track central-bank rates, but it found that while this holds over the long term, it doesn’t hold in the short term.
The researchers exploited data available on the chain from Aave, the largest DeFi lending protocol, and found that between 2021 and 2026, DeFi lending rates were, on average, around one percentage point above the Federal funds rate, but they were highly volatile. There were also prolonged periods when DeFi rates were significantly below conventional policy rates, and around some monetary-policy changes, DeFi rates even moved in the opposite direction to the policy rate.
The researchers argued that this was happening because DeFi rates are not simply determined by the cost of money, they are also affected by digital asset investors’ use of leverage: “Both the sign of the short-run effect and the speed of convergence depend on the intensity of deleveraging induced by crypto-price reactions relative to the standard interest-rate arbitrage channel — an effect shaped by investors’ limited ability to bridge traditional and decentralized finance.”
For example, if the United States Federal Reserve unexpectedly raised rates and the value of BTC fell, leveraged traders may begin unwinding their positions, repaying DeFi loans, and reducing demand for stablecoin borrowing. This, in turn, could push DeFi lending rates lower—even as conventional interest rates rise.
At the same time, higher traditional rates should encourage investors to move capital toward better-paying opportunities, creating pressure for DeFi rates to adjust upward. These two forces can therefore work against each other.
The study found that DeFi rates nevertheless tended to converge toward traditional risk-free rates over time. This is largely because of arbitrage, as investors with access to both markets have an incentive to move capital whenever a significant rate difference emerges.
However, moving capital between TradFi and DeFi can involve transaction costs, collateral requirements, operational and regulatory constraints, smart-contract risks, and other barriers. There are also still relatively few large, active market participants capable of arbitrage between the two systems at scale.
In other words, monetary policy does influence stablecoin-based DeFi markets, but transmission is slower and less predictable than in traditional financial markets—the broader implication being that DeFi is connected to TradFi but not yet fully integrated with it, as interest rates reflect both conventional monetary conditions and the digital asset market’s own leverage cycle.
For users, the study suggests that a high DeFi lending yield should not automatically be viewed as “free” or risk-free interest, as part of that yield may reflect the additional risks and inefficiencies inherent in digital asset markets. Meanwhile, policymakers and central banks may need to monitor DeFi lending rates, stablecoin borrowing, and digital asset leverage as additional indicators of financial conditions.
The findings come as European policymakers are paying closer attention to the relationship between digital asset markets and the wider financial system. The ECB is also building out a digital financial infrastructure of its own, with preparations for the digital euro moving toward a practical testing phase.
ECB calls for merchants to test digital euro
The ECB has invited e-commerce and mobile-commerce merchants across the eurozone area to join a 12-month digital euro pilot, expected to begin in the second half of 2027, as the bank continues to prepare for a potential issuance of the EU’s proposed central bank digital currency (CBDC) in 2029.
On Tuesday, the Eurosystem launched a call for expression of interest, inviting e-commerce and mobile commerce (m-commerce) merchants to take part in the 12-month digital euro pilot, which will test a beta version of the digital euro in a controlled payment environment designed to replicate the key characteristics and functionalities envisaged for a digital euro.
The call follows the July 14 selection of 36 payment service providers (PSPs)—from over 50 applicants—to participate in the pilot.
“The strong market interest in the pilot shows the private sector’s readiness to engage actively and quickly advance with the digital euro project to strengthen the European payments landscape,” said ECB Executive Board member Piero Cipollone, who chairs the High-Level Task Force on a digital euro, when announcing the PSP participants in July. “We look forward to deeper engagement as we work with and learn alongside European payment service providers in developing a secure, efficient and inclusive digital euro.”
The ECB described its latest call for participants as “a unique opportunity” for merchants to collaborate with the ECB and eurozone area national central banks on the future of digital payments in Europe.
“By participating in the pilot, selected merchants will gain first-hand experience of a simulated digital euro ecosystem and their feedback will further shape the digital euro’s technical specifications,” said the bank.
The digital euro project has been brewing since 2021, when the ECB launched an investigation into a Eurozone CBDC for use by citizens and businesses in retail payments. This lasted for two years, after which the central bank began the digital euro “preparation phase” in November 2023.
After positive progress, in November 2024, the ECB called for partners to test conditional payments in a CBDC simulation that started in February 2025, later announcing it was expanding this initiative to enable settlement of transactions between institutions via a wholesale CBDC payment system.
On May 5, 2025, the ECB announced that it had established an “innovation platform” with 70 participants to collaborate on testing the digital euro project. The platform was intended to simulate the proposed digital euro ecosystem, “in which the ECB provides the technical support and infrastructure for European intermediaries to develop innovative digital payment features and services at European level.”
Throughout all this time, talks and negotiations continued between the ECB, European lawmakers, and member states over the necessary legislation.
In September 2025, a compromise and roadmap were reportedly agreed upon, including procedures that would give ministers a say on whether to launch and on holding limits. Cipollone hailed this as a “major breakthrough,” to the point that he felt confident enough to declare: “The discussion at the level of member-states is going very well… The middle of 2029 could be a fair assessment.”
Cipollone confirmed this latter pledge in February of this year, during an executive committee meeting of the Italian Banking Association, saying “we aim to be ready for a potential first issuance of the digital euro during 2029… a pilot exercise and initial transactions could be launched in mid-2027.”
The digital euro pilot aims to test the technical functionality, operational processes, and overall user experience of the digital euro. The ECB said it will use a beta version of the digital euro that is “functionally and technically close” to the intended final product—as foreseen in the draft legislation—but will not have legal tender status.
The pilot will involve staff from participating Eurosystem central banks, selected PSPs, and selected merchants offering everyday services at the ECB and the euro area national central banks (e.g., cafeterias and restaurants).
With regards to its latest call for participants, according to the ECB, selected merchants will act as business end users, enabling beta digital euro payments in remote commerce environments and contributing to the validation of the digital euro payment experience, operational processes, and core functionalities.
Specifically, the bank said participating merchants will gain first-hand experience with beta digital euro transactions in realistic e-commerce and m‑commerce environments; interact directly with pilot participants and observe how users experience the beta digital euro in practice; test customer payment journeys and explore how the digital euro could fit into existing checkout and payment processes; and share feedback on payment journeys, merchant needs, integration aspects and the customer experience.
Beyond testing functionality, the pilot will also serve as an important forum for collaboration between merchants, PSPs, and the Eurosystem, with feedback collected throughout the pilot helping to inform future design decisions, improve user journeys, and ensure that the merchant perspective is considered as preparations for a potential digital euro continue.
“This will allow selected merchants to contribute to the development of a digital euro that better supports the needs of merchants and consumers across Europe,” said the ECB.
Interested merchants were invited to apply by October 27, 2026. The ECB said applications will be assessed based on eligibility requirements and weighted evaluation criteria covering applicants’ market reach, operational readiness, and suitability to support the pilot.
“The Eurosystem’s ongoing preparations for a digital euro will be implemented flexibly, ensuring alignment with the legislative process,” the ECB said, while reiterating that “the final decision on whether to issue a digital euro will only be taken once the relevant EU legislation has been adopted.”
While the digital euro remains subject to the EU legislative process, the latest call for merchants represents another step toward testing how the proposed currency would work in everyday transactions, moving the project further from development and into practical use cases.
At the same time, the EU is tightening the rules governing the technology on which digital financial products depend, with new cybersecurity obligations having just come into force.
Wallet providers must report exploits within 24 hours
New cybersecurity rules are beginning to affect the digital-asset industry in the EU, with manufacturers of products with digital elements, including digital asset wallets, now facing a 24-hour deadline to report actively exploited vulnerabilities, following the entry into application of a major part of the bloc’s Cyber Resilience Act (CRA) on September 11, 2026.
The CRA establishes cybersecurity requirements for hardware and software products with digital elements made available on the EU market. It entered into force on December 10, 2024, with most of its obligations due to apply from December 11, 2027. However, its incident and vulnerability reporting obligations under Article 14 began to apply on September 11, 2026.
Under the regime, manufacturers must actively report vulnerabilities that are being exploited and severe incidents affecting the security of products with digital elements. An early warning must be submitted without undue delay and, in any event, within 24 hours of the manufacturer becoming aware of the vulnerability or incident. A fuller notification is generally due within 72 hours, and, for actively exploited vulnerabilities, a final report is due no later than 14 days after a corrective or mitigating measure becomes available; for severe incidents, the final report is due within one month of the 72-hour notification.
Manufacturers submit these notifications through the CRA Single Reporting Platform, using the designated national Computer Security Incident Response Team’s (CSIRT) reporting endpoint, with the information simultaneously accessible to the European Union Agency for Cybersecurity (ENISA).
The CRA also requires manufacturers to incorporate cybersecurity into the planning, design, development, production, delivery, and maintenance of products with digital elements, including effective vulnerability handling during the product’s support period. Covered products must undergo the applicable conformity assessment before being placed on the EU market and, where required, bear the CE marking.
The reporting requirements have an important transitional feature, in that they apply to products with digital elements already made available on the EU market, including products placed on the market before December 11, 2027. This does not mean that all of the CRA’s substantive requirements apply retroactively to every previously sold product; they generally become subject to those requirements only where they undergo a substantial modification.
Meanwhile, manufacturers must also inform impacted users—and, where appropriate, all users—about an actively exploited vulnerability or severe incident and provide relevant risk mitigation or corrective measures.
For the digital-asset industry, the significance of these new rules is that certain hardware and software wallets could fall within this broader product-security framework. Thus, alongside questions of monetary transmission and the development of new forms of digital money, firms must increasingly take into account requirements around the resilience and security of the technology they put on the market.
Taken together, these various studies and developments emanating from the EU illustrate the different ways digital assets are becoming embedded in Europe’s financial and technological framework, as much as they are increasingly at the forefront of policymakers’ and regulators’ thoughts.
For the industry, they appear to provide more evidence that the direction of travel is toward greater integration with the mainstream financial system, accompanied by greater scrutiny of the risks that come with this.
Watch: Understanding MiCA with Juan Ignacio Ibañez, MiCA Crypto Alliance’s Executive Director
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