Circle and Tether Challenge MiCA Reserve Rules for Stablecoins in Europe

Circle and Tether are jointly opposing certain provisions of the European Union's Markets in Crypto-Assets Regulation (MiCA), particularly those concerning reserve requirements for stablecoins. Circle has proposed a recognition regime that would allow foreign-regulated stablecoin issuers to operate within the EU without needing full authorization, aiming to integrate more global market participants into the EU's regulatory framework.

Currently, only three of the top 25 stablecoins—USDC, USDG, and EURC—are regulated under MiCA, despite a significant number of e-money tokens receiving authorization since the regulation's inception. Circle's proposal suggests that the European Commission should evaluate whether a foreign jurisdiction's regulatory standards align with those of the EU. Following this, the European Banking Authority (EBA) would recognize individual issuers, allowing them to operate under their home country’s supervision while distributing tokens through licensed local institutions.

Additionally, Circle is contesting a requirement that mandates e-money token issuers to maintain at least 30% of their reserves in commercial bank deposits, increasing to 60% for significant tokens. Circle argues that this requirement increases exposure to bank credit and counterparty risks, a sentiment echoed by Tether's CEO, Paolo Ardoino, who has expressed concerns about the systemic vulnerabilities this could create.

Circle is also advocating for the removal of a 35% cap on exposure to a single sovereign entity and a rule limiting deposits with any one bank to 1.5% of that bank's total assets. They believe these restrictions hinder the ability of dollar stablecoins to invest in high-quality sovereign securities and force issuers to distribute reserves across numerous banks, potentially complicating liquidity management.

As the EBA considers tightening controls on multi-issuer stablecoins, Circle's proposals highlight the need for a more flexible regulatory approach that accommodates global liquidity while maintaining robust oversight. The ongoing consultation regarding MiCA closed on September 30, and the outcomes could lead to significant legislative changes.