Circle asks EU to drop MiCA's bank deposit rule for stablecoins

Circle wants the European Union to drop a rule that makes stablecoin issuers keep 30% of their reserves in bank deposits, and 60% for the biggest. It filed the request on October 1, arguing the rule adds risk rather than cutting it.

The USDC issuer laid out its case in a formal response to the European Commission's review of MiCA, the bloc's crypto law. The company posted the submission on its own blog the same day. Reserve rules sat at the center of it.

What Circle wants changed

Under MiCA, an issuer of a euro or dollar stablecoin must keep part of its reserves as cash in commercial banks. The floor is 30% for a normal issuer and 60% for one a regulator labels significant, a tag USDC would almost certainly earn given its size. Circle wants those fixed percentages gone.

Circle frames the change as a fix for a rule few can meet. Only three of the 30 largest stablecoins comply with MiCA today, Patrick Hansen, Circle's director of EU strategy and policy, told crypto.news, naming USDC, EURC and USDG. Circle issues the first two.

In their place the company proposes a liquidity test. Reserves would have to be sellable within a set window rather than parked in a bank by law. Circle said this lines up with guidance from the European Central Bank.

The firm also asked Brussels to scrap two limits on how reserves can spread. One caps exposure to any single government's debt at 35%. The other stops an issuer holding deposits worth more than 1.5% of a given bank's total assets. Circle said that second rule would force a large issuer to split its cash across dozens of banks.

Why a stablecoin firm fears bank deposits

At heart the worry is simple. Banks can fail. When a lot of a stablecoin's backing sits in one bank, the token is only as safe as that bank.

Circle knows the risk first hand. In March 2023, it disclosed that about $3.3 billion of USDC's reserves were stuck at Silicon Valley Bank as the lender collapsed. USDC briefly lost its one-dollar peg and fell to around 87 cents before the deposits were made whole. The company has pointed back to that episode ever since.

There is a second reading Circle does not stress. Holding less in bank deposits would let issuers hold more in short-term government bonds. That debt pays interest, and interest on reserves is where stablecoin issuers make most of their money. A looser rule would be safer by Circle's telling. It would also be more profitable.

Circle is not the only one pushing

Plenty of other firms filed comments before the window shut. The Commission had set an August 31 deadline, then pushed it to September 30, and submissions landed in the final days. Banks and payment companies have been racing to launch dollar tokens of their own, which has made the reserve question more pressing.

Among them was the Hyperliquid Policy Center, a group funded by the Hyperliquid project. It argued that perpetual futures, a popular crypto derivative, should sit under the EU's older MiFID II rules rather than MiCA. "The classification of financial instruments should follow economic features," said Jake Chervinsky, the group's chief executive, pointing to what a product does rather than the technology behind it.

Circle made one more request that matters for its own business. It asked the Commission to protect multi-issuance, the setup that lets a single token be issued jointly by a MiCA-licensed European arm and a sister company regulated elsewhere. Without it, Circle warned, users would drift to offshore issuers that sit outside the EU's rules entirely.

What to watch

Nothing has changed yet. A consultation response is a request, not a law, and the Commission has not said whether it will touch the reserve rules. The review could run for months before any draft appears.

Watch for the Commission's own report on the MiCA review, which will show which industry asks it took seriously. Watch too for the European Central Bank and the European Banking Authority, which wrote the deposit rules and may defend them. For now, nothing about how USDC is backed in Europe changes, and the broader shape of the region's crypto rules stays as it is. The rule Circle dislikes is still the rule.