Key Takeaways
- Circle urged MiCA updates for foreign stablecoins to stop users from fleeing to offshore exchanges.
- Circle asked the EU to drop heavy bank reserve rules, reducing issuers’ exposure to banking sector risk.
- Diplomatic leaks indicate the EU is open to altering stablecoin rules in line with recent global shifts.
Circle Proposes New Foreign Stablecoin Regime Under MiCA
Circle, the issuer of USDC, a dollar-pegged stablecoin with over $74 billion in market capitalization, has submitted several recommendations to review the current Markets in Crypto Assets (MiCA) regulation, aiming for less stringent compliance on foreign stablecoins.
In response to the European Commission’s targeted consultation, Circle proposed tackling the foreign stablecoin issue in MiCA, pushing the Union to close the perimeter and capture the largest global tokens inside its regulatory action.
Circle stressed that out of the largest 25 stablecoins by market capitalization, only three were regulated under MiCA, and of those three, two (USDC, EURC) were issued by the company. In this sense, it advocated for maintaining the multi-issuance model, which allows for the co-issuance of international stablecoins by a MiCA-regulated institution and a foreign counterpart.
Patrick Hansen, Director, EU Strategy & Policy at Circle, warned that failing to maintain it would incentivize stablecoin users to jump to offshore exchanges where they lack the protections that MiCA was designed to extend.
To fix current MiCA deficiencies, Circle proposes a recognition regime for foreign stablecoin issuers that would be primarily supervised in their national jurisdiction, with equivalence and recognition from the involved parties and the European Banking Authority (EBA), with local institutions handling distribution in the EU.
The proposal would also allow Euro-based stablecoins to circulate in foreign jurisdictions under the same agreement.
Circle also disagreed with the current capital requirements for e-money token issuers, which force these institutions to hold 30% of their reserve assets in commercial banks, with these requirements going up to 60% for “significant” e-money tokens.
“In our response, we note that this requirement increases exposure to the credit and counterparty risk of the banking sector. We therefore concur with the ECB that this mandatory minimum deposit requirement should be reconsidered and replaced with a less rigid minimum asset liquidity requirement under MiCA,” the company assessed.
While the feedback period for the review has just ended, diplomatic sources have already leaked that the EU is determined to change its stablecoin rules to be more in line with recent regulatory developments, including the passage of the GENIUS Act in the U.S.
