Circle is urging the European Commission to revise its Markets in Crypto-Assets Regulation (MiCA), targeting rules that require stablecoin issuers to hold 30% to 60% of reserves in commercial bank deposits. Siding with the European Central Bank, Circle proposes replacing these mandates with flexible liquidity requirements to avoid banking-sector credit risks, recalling its own $3.3 billion exposure during the 2023 Silicon Valley Bank collapse. Meanwhile, Tether continues to reject MiCA compliance over these reserve rules.
Circle's objections to MiCA reserve rules
- ▪Circle requested the removal of a Markets in Crypto-Assets Regulation rule that caps single-sovereign exposure at 35% of reserves, which Circle argued restricts government-backed liquid assets for dollar-denominated tokens
- ▪Circle submitted recommendations to the European Commission's Markets in Crypto-Assets Regulation review, urging the removal of mandatory commercial bank deposit requirements for stablecoin reserves
- ▪Circle requested the removal of a Markets in Crypto-Assets Regulation rule limiting deposits with an individual banking counterparty to 1.5% of that bank's total assets, which Circle argued forces large issuers to use dozens of banks
- ▪Markets in Crypto-Assets Regulation rules require e-money token issuers to hold at least 30% of reserves in commercial bank deposits, rising to 60% for stablecoins classified as significant
Central Bank proposals on stablecoin deposits
- ▪The European Central Bank and the European System of Central Banks proposed replacing fixed bank deposit thresholds with minimum liquidity requirements based on asset maturity within one and five working days
- ▪The European System of Central Banks argued that large stablecoin deposits create risks for commercial banks because heavy redemptions could force rapid, large-scale withdrawals and pass stress into the banking system
Circle's stance on multi-issuance arrangements
- ▪Circle and the Chamber of Progress argued that restricting multi-issuance would push European users toward offshore stablecoin providers operating outside the protections of the Markets in Crypto-Assets Regulation
- ▪Circle urged the European Commission to preserve multi-issuance arrangements that allow an EU-authorized entity and a foreign-regulated affiliate to jointly issue the same stablecoin
Regulated stablecoins in Europe
- ▪Circle received an Electronic Money Institution license from French regulators in July 2024, allowing its French entity to issue USD Coin and EURC for European customers
- ▪Circle noted in its submission to the European Commission's MiCA review that only three of the top 25 global stablecoins by market capitalization—specifically USD Coin, USDG, and EURC—are currently regulated under the Markets in Crypto-Assets Regulation
USDT under MiCA
- ▪In July, OKX opened a route allowing eligible European users to deposit USDT and convert it into MiCA-compliant USDC as restrictions on noncompliant stablecoins took effect
- ▪Tether Chief Executive Officer Paolo Ardoino declined to seek Markets in Crypto-Assets Regulation authorization for USDT, arguing that the commercial bank deposit requirements expose reserves to bank failures
Circle's Silicon Valley Bank exposure
- ▪The $3.3 billion in USD Coin reserves held at Silicon Valley Bank became available to Circle after United States authorities protected the failed bank's depositors
- ▪Circle's USD Coin temporarily lost its U.S. dollar peg in March 2023 after Circle disclosed that $3.3 billion of its reserves were held at Silicon Valley Bank when the lender failed
Hyperliquid Policy Center regulatory recommendations
- ▪The Hyperliquid Policy Center requested that regulators recognize transaction records available on public blockchains to satisfy regulatory transparency and recordkeeping obligations
- ▪The Hyperliquid Policy Center urged the European Commission to regulate crypto perpetual futures as derivatives under the existing MiFID II framework rather than bringing them under the Markets in Crypto-Assets Regulation
Debatable claims
- ▪Large stablecoin deposits pose a significant risk to the commercial banking system
- ▪Existing EU derivatives frameworks are sufficient to regulate crypto perpetual futures
- ▪Europe should remove minimum bank-deposit requirements for stablecoin reserves
- ▪Restricting stablecoin multi-issuance will drive European users to unregulated offshore platforms
Story comments
Loading comments…