Circle challenges EU’s stablecoin reserve rules—could this shake up the entire MiCA framework?

Ever wonder if stablecoins are really “stable” — or just juggling a precarious cocktail of risks behind the scenes? Circle, the issuer behind USDC and EURC, recently threw down the gauntlet, urging the European Commission to rethink how reserve requirements are defined under MiCA. After all, mandatory bank-deposit rules tether stablecoins to banking-sector credit risks, something Circle painfully experienced firsthand last March when its $3.3 billion stash at Silicon Valley Bank nearly upended USDC’s dollar peg. It’s a sharp reminder: In the world of crypto, pegging your digital assets to real-world banks isn’t always the sure bet it seems. Now, with Europe’s regulatory gears turning via a consultation that just closed, industry heavyweights and advocacy groups alike are chiming in, calling for smarter, more flexible frameworks that can keep pace with the evolving crypto ecosystem. Could this shakeup redefine how we think about “stability” in digital finance? Let’s dive in. LEARN MORE.

Stablecoin issuer Circle urged the European Commission to revise reserve requirements in its response to a consultation on reviewing the Markets in Crypto-Assets Regulation (MiCA).

In Thursday’s summary of its response, the USDC and EURC issuer said mandatory bank-deposit requirements expose stablecoin issuers to banking-sector credit and counterparty risks.

Circle faced those risks firsthand in March 2023, when USDC temporarily lost its dollar peg after the company disclosed that $3.3 billion of its reserves were held at Silicon Valley Bank. The funds were subsequently made available after US authorities protected the bank’s depositors.

The consultation, which closed Wednesday, sought feedback on how MiCA is working and whether it remains fit for purpose as crypto markets develop. Responses will inform the Commission’s assessment of the regulation and activities beyond its current scope.

Circle aligns with central bank on reserve requirements

MiCA currently requires e-money token issuers to hold at least 30% of reserves in commercial bank deposits, with a higher minimum of 60% for significant issuers, according to Circle.

Circle backed reconsidering the mandatory deposit minimums and replacing them with a more flexible minimum asset liquidity requirement, agreeing with the European Central Bank.

The company also called for removing two reserve concentration limits that impose 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.

The stablecoin issuer also urged the Commission to preserve “multi-issuance,” through which a European Union-authorized entity and a foreign-regulated counterpart co-issue a stablecoin. Restricting that structure would push users toward offshore providers outside MiCA’s protections, Circle argued.

Industry groups seek changes to onchain market rules

The Hyperliquid Policy Center also responded to the consultation, urging the Commission to treat crypto perpetual futures under the EU’s existing securities and derivatives framework, the second Markets in Financial Instruments Directive, or MiFID II.

The group called for requirements tailored to perpetual futures’ market structure and recognition of public blockchain records as a way to meet transparency and recordkeeping obligations.

The Global Blockchain Business Council recommended clearer token classification, proportionate stablecoin safeguards and less duplication between MiCA and payment-services rules.

On cross-border stablecoin issuance, GBBC called for clear redemption responsibilities, enforceable reserve rebalancing and an accountable EU supervisory framework.

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