Circle wants EU to ease MiCA bank deposit rules for stablecoins

Circle has urged the European Commission to remove fixed bank deposit requirements for stablecoin reserves as the EU reviews its Markets in Crypto Assets regulation.

Summary

• Circle urged the European Commission to reconsider MiCA rules requiring stablecoin issuers to hold at least 30% of reserves in commercial bank deposits, rising to 60% for significant issuers.
• The USDC issuer backed replacing fixed deposit thresholds with liquidity requirements, aligning with a similar proposal from the European Central Bank.
• Circle argued mandatory deposits expose issuers to banking risks, pointing to its experience when $3.3 billion of USDC reserves became caught up in the Silicon Valley Bank collapse.
• The company wants the EU to preserve multi issuance arrangements that allow regulated entities inside and outside the bloc to jointly issue the same stablecoin.

Circle said in its response to the Commission’s MiCA consultation that forcing e money token issuers to keep a set portion of their reserves at commercial banks leaves them exposed to credit and counterparty risks in the banking system.

Current rules require regular e money token issuers to keep at least 30% of their reserves in commercial bank deposits. For stablecoins classified as significant, the minimum rises to 60%.

The USDC and EURC issuer backed replacing those thresholds with minimum liquidity requirements based on how quickly reserve assets can be accessed for redemptions. A similar approach was proposed by the European Central Bank and the EU’s 27 national central banks in their own response to the consultation.

Circle’s position follows its own experience with banking risk. USDC temporarily lost its dollar peg in March 2023 after the company disclosed that $3.3 billion of its reserves were held at Silicon Valley Bank when the lender failed. US authorities later protected the bank’s depositors and the funds became available to Circle.

Circle wants reserve rules based on liquidity

Under Circle’s proposal, regulators would focus more closely on the liquidity of the assets backing a stablecoin instead of requiring issuers to place a fixed percentage of reserves with banks.

European central banks proposed a similar model in September, asking regulators to set minimum proportions of reserve assets that mature within one working day and five working days. Their proposal would determine how quickly an issuer could access funds during redemptions without requiring a fixed share to remain as bank deposits.

The European System of Central Banks argued that large stablecoin deposits can create risks for banks because funds held by issuers may behave differently from ordinary retail deposits. During heavy redemptions, an issuer could have to withdraw large amounts from its banking partners within a short period.

As crypto.news previously reported, central banks said such withdrawals could pass stress from a stablecoin into the commercial banks holding its reserves. MiCA’s deposit rules were originally designed in part to provide issuers with readily available liquidity, but the ECB has identified the potential for large withdrawals to put pressure on lenders.

Circle wants two other reserve restrictions reconsidered. One places a 35% ceiling on exposure to a single sovereign, while another limits deposits with an individual banking counterparty to an amount equal to 1.5% of that bank’s total assets.

According to the issuer, the sovereign exposure limit can restrict the amount of government backed liquid assets available to issuers of dollar denominated tokens. Circle argued that the banking counterparty limit could leave large stablecoin issuers needing relationships with numerous banks to meet the rules.

MiCA bank rules have divided stablecoin issuers

Bank deposit requirements have already been a point of disagreement between European regulators and some of the world’s largest stablecoin companies.

Tether has declined to seek authorization for USDT under MiCA, with CEO Paolo Ardoino previously arguing that the deposit requirements could expose stablecoin reserves to commercial bank failures.

The regulatory divide became more visible after MiCA’s transition period ended. 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 continued to reject MiCA authorization over concerns surrounding the reserve framework.

USDC and EURC have remained available through Circle’s regulated European structure. Circle received an Electronic Money Institution license from French regulators in July 2024, allowing its French entity to issue the two stablecoins for European customers.

EURC has since grown within the regulated market. Circle’s euro stablecoin passed €400 million in circulation in August after its supply more than doubled over the previous year. Circle said the token was being used across payments, foreign exchange, treasury operations and institutional settlement.

Data published in July showed the combined market capitalization of eight MiCA compliant euro stablecoins had climbed 128% in the year through June 28, from $295.6 million to $673.9 million. EURC, EURCV and EURI accounted for most of the growth tracked in the report.

Circle wants multi issuance preserved under MiCA

Reserve requirements form one part of Circle’s requested changes. The company wants the Commission to preserve what it calls “multi issuance,” where an EU authorized entity and a regulated entity outside the bloc can jointly issue the same stablecoin.

Circle argued that limiting the structure could push European users toward offshore stablecoin providers that operate outside MiCA’s protections.

The issuer said the model allows a global stablecoin to operate through regulated entities in different jurisdictions while maintaining fungibility between tokens. Its proposal includes mechanisms for rebalancing reserves between European and overseas issuers.

Circle has separately proposed a recognition system for stablecoin issuers regulated outside the EU. Under the proposal, an overseas issuer could remain primarily supervised in its home jurisdiction while distributing tokens in Europe through a locally licensed institution.

The company suggested combining a European Commission assessment of a foreign jurisdiction’s regulatory framework with a European Banking Authority decision on whether to recognize an individual issuer.

Industry groups seek other MiCA changes

Other respondents used the Commission’s review to seek changes beyond stablecoin reserves.

The Hyperliquid Policy Center asked regulators to treat crypto perpetual futures under the EU’s existing securities and derivatives framework, MiFID II. The group argued that perpetual futures should be regulated according to their economic characteristics even when trading and settlement take place using blockchain infrastructure.

For transparency and recordkeeping requirements, the policy center asked regulators to recognize information available on public blockchains. It argued that onchain records can provide data relevant to regulatory reporting obligations.

The Global Blockchain Business Council called for clearer rules around token classification and safeguards for stablecoins that are proportionate to the risks involved. The industry group sought less overlap between MiCA and payment services rules.

On stablecoins issued across jurisdictions, GBBC called for clear responsibility over redemptions, enforceable mechanisms for moving reserves between issuing entities and an EU supervisory structure with an identifiable accountable entity.

The European Commission opened the review to gather feedback on how MiCA is functioning as crypto markets develop. Submissions from issuers, financial institutions, industry groups, public authorities and other participants will feed into the Commission’s assessment of the regulation and activities that currently fall outside its scope.