Circle asks Europe to rethink MiCA reserve rules as stablecoin policy shifts to implementation

Circle is using the European Commission's MiCA review to challenge one of the most consequential design choices in Europe's stablecoin rulebook: how much reserve backing must sit inside commercial bank deposits. The USDC and EURC issuer says the current framework should move away from fixed bank-deposit minimums and toward a more flexible liquidity standard that can support large stablecoin issuers without forcing excessive exposure to bank counterparties.

Under MiCA, e-money token issuers must hold at least 30% of reserve assets in commercial bank deposits. For tokens classified as significant, that floor rises to 60%. Circle argues that the requirement was designed to protect redemption liquidity but can also concentrate risk in the banking system. The company points to the credit and counterparty exposure created when a large share of reserves must be placed with banks rather than held in other high-quality liquid assets.

The argument is not theoretical for Circle. USDC temporarily lost its dollar peg in March 2023 after Circle disclosed that $3.3 billion of reserves were held at Silicon Valley Bank during the bank's failure. Depositors were later protected by U.S. authorities, but the episode became a live example of the risk Circle is now asking European policymakers to account for: a reserve rule intended to make stablecoins safer can create a different vulnerability if it pushes too much backing into the same type of institution.

Circle's response also targets two concentration limits introduced through European Banking Authority technical standards. One is a 35% cap on exposure to a single sovereign, which Circle says complicates reserve construction for non-euro stablecoins such as dollar-denominated tokens that would otherwise rely heavily on sovereign high-quality liquid assets. The other is a 1.5%-of-total-bank-assets cap per banking counterparty, which Circle says could force larger issuers to maintain relationships with dozens of banks, increasing operational complexity instead of reducing risk.

The policy ask goes beyond reserve composition. Circle is also advocating a recognition model for foreign-regulated stablecoins, drawing comparisons to equivalence frameworks used in other areas of financial markets regulation. In that structure, a stablecoin issuer primarily supervised in its home jurisdiction could distribute in the EU through a locally licensed institution, provided the foreign regime and entity met recognition standards. That would be especially important for global dollar stablecoins that serve cross-border payments, exchange liquidity and treasury use cases.

For European regulators, the tension is clear. MiCA made the EU a first mover in comprehensive crypto-asset regulation and created a clearer licensing path for euro and dollar stablecoin activity inside the bloc. But implementation is now exposing second-order questions: whether strict reserve localization supports resilience, whether it reduces the competitiveness of EU venues, and how Europe should treat stablecoins that are economically global but legally supervised elsewhere.

The debate matters for RWA markets because stablecoins increasingly sit next to tokenized funds, collateral products and settlement workflows. Tokenized securities can reduce operational friction only if the cash leg is reliable, liquid and legally usable across venues. Reserve rules that shape which stablecoins can circulate, how large they can become and how quickly they can redeem will indirectly affect the settlement layer for tokenized assets.

Circle's proposal is not a request to remove prudential controls. It is a request to change their shape, replacing hard deposit floors and tight concentration constraints with a liquidity-based approach the company says would better match the risk profile of large issuers. Policymakers will have to decide whether that improves resilience or gives issuers too much discretion. Either way, the MiCA review is becoming less about whether Europe should regulate stablecoins and more about how its rules perform once stablecoins are part of real financial-market infrastructure.