Stablecoin issuer Circle is pressing European Union regulators to overhaul the reserve requirements embedded in the bloc's landmark crypto framework, arguing that current rules force issuers to park excessive funds in commercial banks and expose them to unnecessary risk.
Circle's Call for Reform
As the EU moves through its scheduled review of the Markets in Crypto-Assets regulation, known as MiCA, Circle has urged policymakers to rethink how stablecoin reserves are held. The company contends that the existing mandate requiring issuers to keep a large portion of reserves as bank deposits should give way to more flexible liquidity standards.
Circle's position centers on the idea that holding significant sums in commercial bank accounts actually heightens risk rather than reducing it. Uninsured deposits sitting at banks can be vulnerable during periods of financial stress, a concern underscored by past banking turmoil that briefly rattled confidence in dollar-pegged tokens.
Forcing issuers to stockpile funds in commercial banks can concentrate risk rather than contain it.
The firm is advocating for reserve frameworks that lean more heavily on highly liquid, low-risk instruments such as short-term government securities, which it argues provide stronger protection for token holders while maintaining the ability to meet redemptions quickly.
Preserving Cross-Border Issuance
Beyond reserve composition, Circle is also asking EU authorities to safeguard the ability to issue stablecoins across borders. The company warns that overly restrictive interpretations of MiCA could fragment the market and undermine the competitiveness of euro- and dollar-denominated tokens operating within the bloc.
Circle, which issues the widely used USDC stablecoin and has secured regulatory approvals to operate in Europe, has positioned itself as a supporter of clear rules while pushing back against provisions it views as counterproductive. The MiCA review offers a window for issuers and industry groups to shape how the regulation evolves.
Key points raised by the company include:
- Replacing rigid bank-deposit minimums with flexible liquidity requirements
- Expanding the role of safe, liquid assets like government debt in reserves
- Protecting the framework for cross-border stablecoin issuance within the EU
The outcome of the review could influence how global issuers approach the European market and whether the region remains an attractive jurisdiction for regulated stablecoin