Circle Urges EU to Overhaul MiCA Stablecoin Reserve Rules

Only three of the world’s 25 largest stablecoins operate under Europe’s digital asset rulebook, a gap Circle says exposes structural flaws in how the European Union regulates dollar-pegged and euro-pegged tokens.

The Boston-based issuer of USDC and EURC submitted formal recommendations Thursday to the European Commission as part of an ongoing review of the Markets in Crypto-Assets Regulation. The filing targets reserve mandates that Circle argues force issuers into riskier banking relationships while failing to attract the dominant global tokens that account for the vast majority of stablecoin transaction volume.

MiCA currently requires e-money token issuers to maintain at least 30% of their backing reserves in commercial bank deposits, a threshold that climbs to 60% for tokens classified as significant. Circle wants those floors eliminated entirely, aligning its position with the European Central Bank, which has warned that heavy reliance on uninsured bank deposits concentrates credit risk rather than dispersing it. Unlike U.S. Treasury bills or overnight reverse repurchase agreements, commercial bank deposits expose reserve funds to institutional failure — a vulnerability underscored in March 2023 when USDC temporarily lost its dollar peg after $3.3 billion was caught in the collapse of Silicon Valley Bank.

Beyond the deposit mandate, Circle is pressing Brussels to scrap a 35% cap on single-sovereign debt exposure and abandon concentration limits that dictate how much capital an issuer can park at any individual bank. For firms managing tens of billions in reserves, these restrictions mathematically require distributing assets across dozens of counterparties, multiplying operational complexity and counterparty risk simultaneously.

The consultation response also defends multi-issuance, a mechanism allowing a globally circulating token to be co-issued by an EU-authorized entity alongside its foreign-regulated parent. Restricting this structure, Circle warned, would push trading activity offshore rather than bringing it under European supervision. Multi-issuance has become a critical bridge for non-European issuers seeking MiCA compliance without restructuring their entire global operations.

Tether’s USDT, the largest stablecoin by market capitalization, operates outside MiCA’s direct oversight despite massive usage across European trading venues. Under MiCA’s transition rules, crypto exchanges face mounting pressure to delist unregulated tokens, yet platforms like Binance have struggled to balance enforcement deadlines against user demand for high-liquidity pairs not backed by authorized issuers.

Washington has moved aggressively to counter Europe’s first-mover advantage in digital asset regulation. The U.S. enacted the Genius Act earlier this year, establishing a federal framework designed to cement dollar dominance through regulated stablecoins. American policymakers increasingly view these tokens as instruments of monetary policy, extending the greenback’s reach into decentralized finance rails where traditional banking infrastructure cannot compete.

The European Commission is expected to propose a broader revision to MiCA in 2027. Until then, national competent authorities across the bloc continue enforcing the existing transition period, creating a fragmented compliance landscape where some member states apply stricter interpretations of reserve requirements than others.