The USDC issuer argues a fixed reserve mandate under MiCA creates concentration risk and wants regulators to judge issuers on liquidity instead. Circle, the issuer of the USDC stablecoin, is
The USDC issuer argues a fixed reserve mandate under MiCA creates concentration risk and wants regulators to judge issuers on liquidity instead.
Circle, the issuer of the USDC stablecoin, is asking European Union regulators to rethink how stablecoin reserves must be held. At issue is a rule under the Markets in Crypto-Assets regulation, known as MiCA, that requires issuers to park 30% of reserves backing euro-denominated stablecoins in bank deposits.
According to reporting from The Cryptonomist and Bitcoin.com News, Circle wants that fixed percentage swapped for a liquidity test. Instead of mandating a set share of reserves sit in bank accounts, regulators would assess whether an issuer's overall reserve mix can meet redemption demand under stress.
The distinction matters because bank deposits carry their own risks. Unlike government securities or cash held in custody, deposits expose stablecoin issuers to the creditworthiness of individual banks. A failure or liquidity squeeze at one bank could ripple through an issuer's reserve base, even if the issuer's total assets comfortably exceed its liabilities.
Circle has long argued that reserves should be held predominantly in short-term government securities and cash equivalents, an approach it already follows for USDC in other jurisdictions. The company's argument to EU regulators appears to extend that philosophy. It frames bank deposit concentration as a structural vulnerability rather than a safeguard.
MiCA, which came into force in phases starting in 2024, was designed to give the EU a harmonized rulebook for crypto-asset issuers and service providers. Stablecoin-specific provisions, sometimes referred to as the e-money token and asset-referenced token rules, impose some of the strictest reserve and governance requirements in any major jurisdiction. The 30% bank deposit threshold was intended to tie stablecoin reserves to supervised banking institutions, giving regulators a familiar line of oversight.
Critics of the rule, including Circle, contend that it was written with traditional e-money in mind rather than the scale and speed of modern stablecoin redemptions. A liquidity test, by contrast, would focus on whether reserves can actually be converted to cash quickly enough to meet redemption requests, regardless of where those assets sit.
The push comes as stablecoin issuers compete for market share in Europe under a regulatory regime still being tested in practice. Firms operating under MiCA have had to adapt reserve structures, disclosure practices, and licensing arrangements since the rules took effect. Any change to the reserve composition requirement would mark one of the more consequential adjustments to the framework since its rollout.
If EU regulators were to adopt a liquidity-based standard, it could reshape how euro-denominated stablecoin issuers structure their reserves across the bloc. Issuers might shift a larger share of holdings into short-term government debt rather than bank deposits, potentially reducing exposure to single-bank counterparty risk.
For Circle specifically, a rule change could ease compliance costs and reduce dependency on banking partners within the EU. Other stablecoin issuers operating under MiCA would likely face the same choice, and any shift in reserve composition rules could influence competitive dynamics among euro-stablecoin providers. No formal regulatory decision has been reported, so the practical market effect remains uncertain pending any EU response.
Circle's request puts a specific MiCA reserve requirement back in front of EU regulators at a time when the bloc's stablecoin rules are still being stress-tested in live markets. Whether regulators move toward a liquidity-based standard, keep the existing deposit threshold, or land somewhere in between will shape how euro stablecoins are backed going forward.
Under MiCA, issuers of euro-denominated stablecoins must hold 30% of reserves as deposits in banks, a fixed percentage requirement.
Circle is reportedly asking regulators to replace the fixed deposit threshold with a liquidity test that evaluates whether reserves can meet redemption demand, regardless of where assets are held.
Bank deposits expose stablecoin reserves to the financial health of individual banks, creating concentration risk that government securities or cash custody arrangements may not carry.
The reporting on this story does not indicate that EU regulators have made a formal decision on changing the reserve requirement.
Originally reported by AltcoinGordon, written by Olivia Hayes. Republished with permission.
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