Circle and Tether find common ground against MiCA’s bank reserve rules
Circle and Tether have raised concerns over the European Union's MiCA banking reserve mandates, arguing that forcing stablecoin issuers to hold large reserves in commercial banks creates systemic financial risks.
Circle is calling on the European Union to amend its Markets in Crypto-Assets Regulation (MiCA) to accommodate foreign-regulated stablecoins and relax reserve mandates that limit global issuers.
The USDC issuer has put forward a recognition framework that would allow qualifying overseas stablecoin operators to distribute their tokens within Europe without needing to become fully authorized EU issuers. This initiative forms part of a wider effort to draw more of the worldwide market under the bloc’s regulatory scope.
Circle noted that out of the 25 largest stablecoins globally by market capitalization, only three—USDC, USDG, and EURC—currently comply with MiCA, even though approximately 30 e-money tokens have gained approval since the framework went live.
Under Circle’s suggested framework, the European Commission would initially evaluate whether a foreign nation’s regulatory standards match those of the EU. Subsequently, the European Banking Authority (EBA) would grant recognition to individual issuers, who would continue to be primarily overseen by their home jurisdictions while making their tokens available through locally licensed entities.
This approach would offer an alternative to current MiCA guidelines, which typically mandate that e-money token issuers acquire full EU authorization if they want their assets publicly distributed or traded in the region.
Additionally, Circle advocates for keeping multi-issuance intact, a setup where a MiCA-approved European firm jointly issues a globally traded stablecoin alongside a foreign-regulated partner. The company cautions that prohibiting this framework could drive European users toward offshore platforms and unregulated tokens that lack MiCA safeguards.
MiCA stablecoin bank reserve rule draws wider opposition
In addition, Circle is pushing back against the mandate requiring e-money token issuers to hold a minimum of 30% of their reserves in commercial bank deposits, a threshold that increases to 60% for tokens deemed significant. The firm prefers substituting this with a broader liquidity benchmark, asserting that enforced deposits elevate an issuer’s vulnerability to bank credit and counterparty hazards.
This viewpoint aligns with prior statements from Tether CEO Paolo Ardoino, who cautioned that compelling major stablecoin issuers to keep large portions of their reserves in banks could generate systemic risks if those financial institutions collapse or struggle with massive redemption requests. Ardoino mentioned last month that Tether opted against pursuing an EU license due to this exact obligation.
This shared perspective is significant because Circle decided to align with MiCA, whereas Tether kept USDT outside of its parameters. Both entities now contend that forcing stablecoin issuers to pool their liquidity within commercial banks may actually foster the very hazards regulators are attempting to avoid.
Furthermore, Circle is asking the EU to eliminate the 35% limit on exposure to a single sovereign entity, as well as the regulation capping deposits at an individual bank to 1.5% of that specific lender’s overall assets. The firm argues these limitations hinder dollar-backed stablecoins from depending heavily on top-tier sovereign assets and compel major issuers to scatter their reserves across dozens of distinct banking institutions.
Meanwhile, regulatory authorities are weighing stricter regulations in other areas. Last month, the EBA advised the Commission to bolster MiCA against vulnerabilities linked to third-country multi-issuer stablecoin setups, cautioning that critical operations like reserves and redemptions can operate outside the reach of effective EU oversight.
The consultation period for the Commission’s MiCA review concluded on September 30, and the resulting conclusions might prompt legislative adjustments. Consequently, Circle’s recognition framework provides no immediate pathway into the European market, meaning foreign issuers must adhere to existing regulations while Brussels evaluates whether welcoming international liquidity justifies relaxing certain barriers that previously excluded them.
Frequently Asked Questions
01What is MiCA?
MiCA stands for Markets in Crypto-Assets Regulation, which is the regulatory framework established by the European Union to govern crypto-assets, including stablecoins and e-money tokens.
02Why are Circle and Tether opposed to the bank reserve rules?
Both companies argue that forcing stablecoin issuers to keep large percentages of their reserves in commercial bank deposits increases exposure to bank credit and counterparty risks, potentially creating systemic vulnerabilities if a bank fails.
03What does Circle’s proposed recognition regime involve?
Circle’s proposal suggests that the European Commission could determine if a foreign jurisdiction’s rules are equivalent to EU standards, allowing the EBA to recognize individual overseas issuers who distribute tokens through local institutions without full EU authorization.
