Circle asks Europe to rethink MiCA reserve rules as stablecoin supervision moves into review mode

Circle has asked European policymakers to revise parts of the Markets in Crypto-Assets stablecoin framework, arguing that the current reserve design can introduce banking-sector concentration risks instead of reducing them. The request came through the company’s response to the European Commission’s targeted review of MiCA, the EU’s flagship crypto-asset regulation.

The core issue is how e-money token issuers should hold assets that back stablecoins. Under MiCA, issuers must keep a minimum portion of reserves in commercial bank deposits, with higher requirements for significant issuers. Circle argues that a fixed deposit floor can force stablecoin issuers to take on bank credit and counterparty exposure even when other high-quality liquid assets may be safer or more resilient under stress.

That argument is not theoretical for Circle. In March 2023, USDC briefly lost its dollar peg after the company disclosed that $3.3 billion of reserves were held at Silicon Valley Bank. The funds were later made available after U.S. authorities protected depositors, but the episode remains one of the clearest examples of how reserve composition, bank access and user confidence are connected. Circle now points to that experience as a reason to replace rigid bank-deposit minimums with a more flexible liquidity standard.

Circle’s submission also asks regulators to revisit concentration limits that apply to sovereign exposure and bank counterparties. The company says reserve rules should preserve redeemability while allowing issuers to manage liquidity, duration and counterparty risk in a way that reflects real market conditions. In practice, that would move MiCA’s stablecoin rulebook closer to a risk-management framework than a checklist based mainly on deposit percentages.

The response comes as Europe moves from writing crypto rules to testing whether those rules can support deep, competitive markets. Circle says MiCA has already given Europe a meaningful head start, noting that roughly 30 e-money tokens are authorized under the framework. At the same time, the company argues that only a small number of the world’s largest stablecoins are currently MiCA-regulated, which suggests the next policy challenge is not simply approving more issuers but making sure regulated tokens can scale.

A second policy thread is cross-border issuance. Circle wants Europe to preserve structures where an EU-authorized issuer and a foreign-regulated counterpart can support the same stablecoin system. The company argues that restricting those models too aggressively could push users toward offshore tokens outside MiCA’s protections. For regulators, the tradeoff is delicate: they want clear redemption accountability inside Europe, but they also do not want domestic rules to isolate European liquidity from global stablecoin networks.

For the RWA market, the debate is bigger than USDC or any single issuer. Tokenized funds, payment networks, collateral systems and onchain settlement venues increasingly rely on stablecoins as cash legs. If reserve rules make regulated stablecoins less liquid or less globally interoperable, tokenized asset markets may face higher friction. If rules are too loose, users and institutions may lose confidence in redemption quality during stress.

The MiCA review therefore marks an important second phase for stablecoin policy. Authorization established a baseline for who can issue regulated tokens in Europe. The next round will shape how those tokens hold reserves, connect to banks, interact with non-EU issuers and support real financial activity. For institutions evaluating tokenized cash legs, those operational details will matter as much as licensing status. Circle’s proposal is best read as an opening bid in that market-structure debate, not a narrow compliance complaint.