USDC issuer Circle is calling for revisions to the stringent bank deposit requirements for stablecoin reserves dictated by the European Union’s Markets in Crypto-Assets (MiCA) regulation. In its feedback to the European Commission’s review of MiCA, Circle advocates for a more adaptable framework that prioritizes asset liquidity over a rigid deposit mandate.
Under the current MiCA regulations, issuers of electronic money tokens are obliged to maintain a minimum of 30% of their reserves in commercial bank deposits. For larger stablecoins classified as “material” by the European Banking Authority, this requirement can escalate to as much as 60%.
Circle has raised concerns that these regulations heighten credit and counterparty risks associated with banking institutions. The company’s argument is underscored by the 2023 collapse of Silicon Valley Bank, where around $3.3 billion in USDC reserves were compromised, temporarily disrupting the token’s one-to-one peg with the US dollar.
To alleviate these ongoing risks, Circle proposes establishing a liquidity requirement. This would enable a segment of reserves to remain accessible for cash withdrawal within one to five business days, moving away from the stringent minimum bank deposit requirements. This recommendation has also found support from the European Central Bank and several national central banks.
Additionally, Circle has expressed objections to another component of the regulation that caps reserve allocation in a single country’s government bonds at 35%. The company argues that such a limitation constrains dollar-pegged stablecoins’ ability to substantially invest in US Treasury bonds.
In the context of MiCA’s review, the Hyperliquid Policy Center has also advocated for perpetual futures contracts on the blockchain to be governed under existing MiFID II derivatives regulations rather than MiCA. It’s important to note that these requests are from industry stakeholders and do not guarantee that the European Commission will adopt the proposals or modify MiCA regulations. A thorough assessment and legislative process will be necessary before any final determinations are made.
