Key Insights:
- Circle wants money to be available when needed to set the rules for holding money than using set percentages from bank deposits.
- The idea shows worries that came up after the 2023 Silicon Valley Bank collapse.
- The larger MiCA review might change the rules for stablecoins, contracts based on prices and sending money across countries.
Circle has asked the European Commission to change the rules, for keeping money in banks for stablecoins to use rules based on having money available. The company that makes USDC and EURC made this request as Brussels looks at MiCA saying that requiring money to be kept in banks can put stablecoins and banks at risk of financial problems.
Circle challenges MiCA reserve requirements
Circle submitted its position during the European Commission’s review of the Markets in Crypto-Assets Regulation. The consultation examined whether MiCA remains suitable as crypto markets expand and develop across the European Union.
Under current rules, e-money token issuers must hold at least 30% of their reserves in commercial bank deposits. That requirement rises to 60% for stablecoins classified as significant.
Circle argues that fixed deposit thresholds create additional credit and counterparty risks for stablecoin issuers. The company instead supports minimum liquidity requirements based on how quickly reserve assets can support customer redemptions.
The proposal would shift regulatory attention from where reserves sit toward how quickly issuers can access them. Therefore, issuers could maintain reserves in highly liquid assets without meeting a predetermined bank deposit percentage.
The European Central Bank and the EU’s national central banks have proposed a similar approach. Their model would assess reserve assets according to whether they can mature or become available within one or five working days.
Silicon valley bank shapes Circle position
Circle’s argument comes straight from what happened to Circle during the banking crisis of 2023. In March of that year USDC lost its dollar peg for a time because Circle said that $3.3 billion of Circle’s reserves were still, at Silicon Valley Bank.
US authorities later protected the bank’s depositors, allowing Circle to regain access to the funds. However, the episode demonstrated how stablecoin reserves held by commercial banks can create vulnerabilities during periods of financial stress.
Circle now argues that large reserve deposits could also transmit stress into the banking system. Heavy stablecoin redemptions could force issuers to withdraw substantial funds from commercial banks within short periods.
The European central banking system has raised a similar concern. Large stablecoin deposits may behave differently from conventional retail deposits, particularly when customers demand rapid redemptions during market stress.
Circle has also asked regulators to remove two additional reserve concentration limits. One restricts exposure to a single sovereign to 35%, while another limits deposits with an individual banking counterparty to 1.5% of that bank’s total assets.
Cross-border issuance remains a key issue
Circle also wants MiCA to preserve multi-issuance arrangements for stablecoins. Under this structure, an EU-authorized entity and a regulated foreign entity can jointly issue the same token.
Circle argues that restricting the arrangement could push European users toward offshore stablecoin providers. Such providers may operate outside the protections established under MiCA.
The company has separately proposed a recognition framework for issuers regulated outside the European Union. Under that model, foreign issuers could remain primarily supervised in their home jurisdictions while distributing tokens through locally licensed European institutions.
Circle has also emphasized the importance of maintaining fungibility between tokens issued across jurisdictions. It proposed reserve rebalancing mechanisms to support that structure.
MiCA review draws wider industry demands
Circle’s submission forms part of a broader industry debate over how European regulators should supervise digital assets. Other groups have used the consultation to request changes affecting derivatives, reporting and cross-border operations.
The Hyperliquid Policy Center asked regulators to use MiFID II rules for perpetual futures. It also asked officials to accept public blockchain records for some transparency and recordkeeping needs.
The Global Blockchain Business Council wanted definitions for tokens and safer rules for stablecoins that fit the risks involved. It also wanted mixing between MiCA and current payment-services rules.
The council suggested duties for redemptions and reserve transfers in different places. It also asked for an EU supervisory system for stablecoin creation that crosses borders.
What Circle’s proposal might bring?
The Commission’s review might affect how stablecoin issuers handle reserves in the market. A system based on liquidity would let issuers be more flexible while making regulators pay attention to being ready to redeem.
At the time the discussion shows a bigger problem for MiCA. Regulators need to find a balance between protecting investors keeping banking stable and handling the way global stablecoin markets work.
The responses, to the consultation will help the European Commission decide on MiCA and things outside its rules. Any changes will depend on the Commission’s review and future rules.
