ECB and EU Central Banks Propose Revising MiCA's Stablecoin Reserve Requirements
The European System of Central Banks (ESCB) has called for replacing MiCA's mandatory minimum bank deposit thresholds for stablecoin reserves with new liquidity rules. The existing requirement of 30% (or 60% for significant stablecoins) of reserves held as bank deposits could pose liquidity risks for banks, especially if stablecoin runs occur. Instead, the ESCB proposes minimum liquidity thresholds for reserve assets maturing within one and five working days, aligning with draft measures from the European Banking Authority in 2024.
ESCB's Proposal to Revise Stablecoin Reserve Rules
The European System of Central Banks (ESCB) called for removing MiCA's requirements that stablecoin issuers hold minimum thresholds of reserves in bank deposits—30% generally and 60% for significant tokens. Instead, they propose setting minimum liquidity levels for assets maturing within one and five working days.
ESCB emphasized that mandating large deposits in banks creates direct links between issuers and credit institutions, potentially posing liquidity risks if a stablecoin run causes issuers to rapidly withdraw funds.
Alternative Instruments to Ensure Liquidity
The ESCB’s proposal includes using highly liquid instruments like overnight reverse repurchase agreements (repos) and short-term sovereign bonds as alternatives to bank deposits for maintaining liquidity requirements.
Such instruments would enable issuers to better manage their reserves and mitigate systemic risks arising from concentration of stablecoin reserves in bank deposits.
Tether’s Earlier Warnings on Bank Risks
Tether CEO Paolo Ardoino warned as early as 2024 that MiCA’s bank deposit requirements could create systemic risks for both stablecoin issuers and banks.
He cited a hypothetical scenario where an issuer holds €10 billion in reserves, with €6 billion required as bank deposits. If banks lend out 90% of these deposits, only €600 million remain liquid, potentially causing a liquidity crunch during significant redemption demands.
Mutual Risks Between Banks and Stablecoins
The ESCB noted that risks flow both ways: a stablecoin run may pressure banks, but bank failures can also trigger stablecoin runs.
An example is the March 2023 Silicon Valley Bank collapse, which led to a run on Circle’s USDC after Circle disclosed that $3.3 billion of its reserves were held at the bank.
Tether’s Response to ECB Announcement
Following the ESCB statement, Paolo Ardoino posted publicly that European central banks want Brussels to remove a MiCA rule requiring large issuers to hold 60% of reserves in commercial banks.
He highlighted that Tether refused to seek an EU license due to this clause, underscoring the significant implications for the stablecoin industry.
Why it matters
The new proposal from the European System of Central Banks signals growing concerns about the stability and safety of stablecoin operations within the EU financial ecosystem. Moving away from mandatory minimum bank deposits towards liquidity-based requirements aims to reduce systemic risks for banks that could arise during large-scale stablecoin runs. It also addresses industry criticism, notably from Tether, that current MiCA provisions could cause liquidity crises. Overall, the changes could foster more resilient stablecoin markets and enhance trust in crypto asset regulation.
Prepared from the source material with AI-assisted editing and checked against the supplied facts.
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