Circle urges EU to revise stablecoin reserve rules in MiCA review
Stablecoin issuer Circle has called on the European Commission to revise the reserve requirements within the Markets in Crypto-Assets Regulation (MiCA) during its review.
Intelligence analysis by Gemini 2.5 Flash
Circle, the issuer of USDC and EURC, advocates for more flexible minimum asset liquidity requirements instead of mandatory bank-deposit minimums for stablecoin reserves. The company also seeks to remove certain concentration limits and preserve cross-border stablecoin issuance to prevent users from moving to offshore providers.
Imagine a special digital coin, like a token in an arcade, that's always supposed to be worth exactly one dollar or one euro. To make sure it stays that way, the company that makes it, like Circle, keeps real money in a bank. But Circle thinks the rules for how much real money they *have* to keep in regular banks are too strict and risky. They want to be able to keep their money in more different, safe places, not just one type of bank, so if one bank has a problem, all their digital coins don't suddenly lose their value. They're asking the grown-ups in charge in Europe to change these rules to make things safer and more flexible.
Analysis
Circle's recent submission to the European Commission's consultation on the Markets in Crypto-Assets Regulation (MiCA) underscores a pivotal moment for stablecoin regulation in the EU. The company's proposals aim to refine the existing framework, which currently mandates that e-money token issuers hold at least 30% of reserves in commercial bank deposits, with a higher 60% for significant issuers. Circle argues that these rigid requirements expose stablecoin issuers to undue banking-sector credit and counterparty risks, a concern directly informed by its own past experiences.
Silicon Valley Bank
Circle's firsthand encounter with banking-sector risks in March 2023 serves as a critical backdrop to its current advocacy. During this period, USDC, Circle's flagship stablecoin, temporarily lost its dollar peg after the company disclosed that a substantial portion of its reserves, specifically $3.3 billion, was held at Silicon Valley Bank. This incident highlighted the vulnerabilities inherent in concentrating stablecoin reserves within traditional banking institutions, especially during times of financial instability. Although US authorities intervened to protect depositors, the event underscored the need for a more diversified and resilient reserve management strategy.
Circle's proposals, therefore, are not merely theoretical but are rooted in practical lessons learned from market shocks. By pushing for a shift from mandatory bank-deposit minimums to more flexible asset liquidity requirements, Circle seeks to mitigate the risk of future de-pegging events caused by single points of failure in the banking system. This approach would allow stablecoin issuers to hold reserves in a broader array of secure, liquid assets, potentially enhancing the overall stability and robustness of the stablecoin ecosystem within the EU.
European Central Bank
Interestingly, Circle's stance on reserve requirements finds alignment with the views expressed by the European Central Bank (ECB). The article notes that Circle backed reconsidering the mandatory deposit minimums and replacing them with a more flexible minimum asset liquidity requirement, agreeing with the ECB. This convergence of opinion between a major stablecoin issuer and a prominent central bank suggests a growing consensus on the need for adaptable regulatory frameworks that can accommodate the evolving nature of digital assets while maintaining financial stability.
Furthermore, Circle's call for removing two specific reserve concentration limits—a 35% cap on exposure to a single sovereign and a ceiling on deposits with each counterparty equivalent to 1.5% of that bank’s total assets—aims to further diversify risk. These limits, while intended to prevent over-reliance on any single entity, could inadvertently restrict efficient reserve management and liquidity provision. By advocating for their removal, Circle seeks to enable more dynamic and responsive reserve strategies that can better adapt to market conditions and reduce systemic vulnerabilities.
Hyperliquid Policy Center
The consultation on MiCA's review has attracted feedback from various industry stakeholders, indicating a broad desire for regulatory refinement. Beyond Circle, the Hyperliquid Policy Center also submitted its response, urging the European Commission to classify crypto perpetual futures under the EU’s existing securities and derivatives framework, MiFID II. This group specifically called for requirements tailored to the unique market structure of perpetual futures and advocated for the recognition of public blockchain records as a legitimate means to fulfill transparency and recordkeeping obligations. This highlights the diverse range of crypto assets and activities that require careful regulatory consideration.
Similarly, the Global Blockchain Business Council (GBBC) recommended clearer token classification, proportionate stablecoin safeguards, and a reduction in regulatory duplication between MiCA and existing payment-services rules. On the critical issue of cross-border stablecoin issuance, the GBBC emphasized the need for clear redemption responsibilities, enforceable reserve rebalancing mechanisms, and an accountable EU supervisory framework. These collective industry inputs underscore the complexity of regulating a rapidly evolving sector and the importance of a comprehensive, yet flexible, approach to ensure both innovation and consumer protection.
Key points
- Circle urged the European Commission to revise MiCA's stablecoin reserve requirements.
- The company proposes replacing mandatory bank-deposit minimums with more flexible asset liquidity rules.
- Circle's proposals are influenced by its experience with USDC's temporary de-pegging after the Silicon Valley Bank collapse.
- The stablecoin issuer also seeks to remove reserve concentration limits and preserve cross-border stablecoin issuance.
- Other industry groups like Hyperliquid Policy Center and Global Blockchain Business Council also provided feedback on MiCA's review.
If the EU adopts Circle's proposed revisions, stablecoins could benefit from a more resilient reserve management framework, reducing systemic risks and enhancing their stability. This could foster greater confidence in the digital asset market within Europe, potentially encouraging innovation and broader adoption of regulated stablecoins.
Should the EU fail to adequately address the concerns raised by Circle and other industry players, overly rigid reserve requirements could stifle innovation, increase operational costs for stablecoin issuers, and potentially push users towards less regulated, offshore alternatives, undermining MiCA's protective goals.
