Circle is reported to want the EU to replace fixed bank-deposit thresholds for stablecoin reserves with rules based on how quickly assets can be accessed for redemptions. The case for flexibility is real, but a rush to redeem could also force large, sudden withdrawals from banks.
- MiCA sets minimum bank-deposit requirements for e-money tokens.
- Circle’s proposed alternative would focus on reserve liquidity.
- The precise terms and date of Circle’s request remain unclear.
- Any change would need to balance redemptions against risks to banks.
What MiCA requires
The EU’s Markets in Crypto-Assets regulation, or MiCA, sets requirements for e-money tokens (EMTs), which reference a single official currency, such as the euro or dollar.
Under MiCA, issuers must keep at least 30% of the funds received in exchange for regular EMTs in separate accounts at credit institutions. For EMTs classified as significant, the minimum is 60%. The remaining funds must meet separate requirements, including investment in secure, low-risk and highly liquid financial instruments denominated in the same currency.
Circle, the issuer of USDC and EURC, is reported to have asked the European Commission to replace those fixed deposit shares with requirements based on how quickly reserve assets can be accessed to meet redemptions. A redemption occurs when a holder exchanges tokens for the corresponding funds.
The exact wording and date of Circle’s request are unclear. Without those details, it is difficult to assess how its proposed liquidity test would work: which assets would qualify, how quickly they would need to be available, and how compliance would be measured.
The case for liquidity, and the risk to banks
A reserve can be valuable yet difficult to turn into cash quickly. A liquidity-focused rule would ask whether an issuer can meet redemptions when holders want their money back, rather than requiring a fixed portion of funds to remain in bank deposits.
Circle has seen firsthand the risks of bank exposure. In March 2023, the company disclosed that $3.3 billion of USDC reserves were held at Silicon Valley Bank when the lender failed. USDC briefly fell below its dollar peg. US authorities guaranteed depositors’ access to their funds, and Circle regained access to the money held at SVB.
The episode showed how trouble at a banking partner can unsettle a stablecoin. It does not prove that deposits are inherently unsafe or that a different reserve rule would have prevented USDC’s temporary depeg. It does show why both the location of reserves and access to them matter.
There is also a risk on the other side. If many stablecoin holders seek redemptions at once, an issuer may need to withdraw large sums from its banking partners quickly. A rule intended to ensure issuers can access cash could add to pressure on banks during a period of stress.
That is the difficult part of the policy debate: reserves need to be available to token holders without turning concentrated, rapid withdrawals into another source of financial stress. “More liquid” is not a complete answer unless regulators also consider where that liquidity sits and how it can be mobilized.
Other reported concerns
Circle is also reported to have sought changes to limits on exposure to a single sovereign and on deposits with an individual banking counterparty. The figures attributed to those requests, 35% for sovereign exposure and 1.5% of a bank’s total assets for deposits, cannot be assessed without the relevant proposal and rule text. They should not be treated as settled descriptions of how those limits apply.
The trade-off is straightforward. Limits on sovereign and bank exposure can reduce concentration in one government or institution. But they may also restrict an issuer’s reserve-management options or require it to work with more banks. Whether that is worthwhile depends on the rules’ exact scope and the risks they are meant to contain.
MiCA’s review leaves key questions open
The European Commission is reviewing how MiCA is working as crypto markets develop. Circle’s reported request is a policy proposal, not evidence that the EU has agreed to change its rules. The available details also do not show how a replacement liquidity test would be calibrated or enforced.
Key questions about Circle’s MiCA request
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What does Circle reportedly want changed?
It wants fixed minimum bank-deposit shares replaced with requirements focused on access to reserves for redemptions. The proposed test’s exact terms remain unclear.
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Why might regulators resist that approach?
Rapid redemptions could force issuers to pull large amounts from banks at once. A liquidity rule must protect token holders without adding pressure on banking partners.
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What happened to USDC during the SVB failure?
Circle disclosed that $3.3 billion of USDC reserves were at Silicon Valley Bank. USDC briefly fell below its dollar peg. US authorities guaranteed depositors’ access to their funds, and Circle later regained access to the money.
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Has MiCA’s deposit rule changed?
No change has been established. Circle’s reported request is a proposal, and its exact terms and date are unclear.
