Circle Advocates for MiCA Stablecoin Reserve Rule Revisions in EU Consultation

Circle, the prominent stablecoin issuer known for USDC and EURC, has formally submitted its feedback to the European Commission regarding the ongoing review of the Markets in Crypto-Assets Regulation (MiCA). The company specifically highlighted concerns about current reserve requirements for stablecoin issuers, advocating for substantial revisions to ensure the regulation remains practical and effective in a dynamic market. This input forms part of a broader consultation aimed at assessing MiCA's performance and identifying areas for potential updates.

At the core of Circle's proposal is a call to move away from mandatory minimums for commercial bank deposits. The regulation currently stipulates that issuers must hold at least 30% of reserves in bank deposits, with a more stringent 60% requirement for significant issuers. Circle argues that these fixed requirements expose stablecoin operations to the inherent credit and counterparty risks within the traditional banking sector, a point underscored by its own experience in March 2023 when USDC's peg was temporarily affected by issues at Silicon Valley Bank.

Instead of rigid deposit mandates, Circle suggests adopting a more flexible approach centered on minimum asset liquidity requirements. This aligns with recommendations previously made by the European Central Bank and would allow issuers greater discretion in managing their reserves. Furthermore, Circle seeks the removal of specific concentration limits, such as the 35% cap on exposure to a single sovereign and the 1.5% ceiling on deposits with any single bank relative to its total assets, which they believe hinder operational efficiency and diversification.

Circle also emphasized the importance of preserving cross-border stablecoin issuance models, specifically advocating for the continuation of "multi-issuance." This structure allows an EU-authorized entity and a foreign-regulated counterpart to co-issue a stablecoin. The company contends that restricting such arrangements could inadvertently drive users towards offshore platforms that operate outside the regulatory oversight of MiCA, thereby diminishing the intended consumer protection benefits of the regulation.

The reaction from the broader crypto industry to the MiCA review consultation reveals a shared interest in refining the regulatory framework. Other entities, like the Hyperliquid Policy Center, have called for specific treatment of crypto derivatives, suggesting their integration into existing financial directives like MiFID II. The Global Blockchain Business Council has also proposed clearer token classifications and a more streamlined approach to stablecoin safeguards, advocating for reduced overlap between MiCA and existing payment services rules.

The implications of Circle's feedback and the broader industry responses are significant for the future of stablecoins and crypto assets within the European Union. If the European Commission adopts Circle's suggestions, it could lead to a more adaptable and potentially less risky regulatory environment for stablecoin issuers. Traders and market participants should closely monitor how these proposed changes are evaluated and whether they result in amendments to MiCA, impacting the stability, accessibility, and operational models of regulated stablecoins operating within the EU market.

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Source: Cointelegraph. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.