Circle’s Call for MiCA Reconsideration
In a recent policy submission dated October 1, Circle has called on European Union regulators to reconsider key aspects of the Markets in Crypto-Assets (MiCA) framework, particularly with regard to the issuance of stablecoins and reserve requirements. Patrick Hansen, the company’s director of EU strategy and policy, highlighted a troubling statistic: currently, only three out of the world’s thirty largest stablecoins meet MiCA’s stringent compliance standards. This insight points to a larger issue within the framework, as Europe has approved around 30 electronic money tokens, yet many of the most prominent global tokens do not fit within these regulatory parameters.
Compliance and Regulatory Challenges
The three stablecoins identified by Hansen as compliant under MiCA are USDC, USDG, and EURC. Circle’s analysis focused on the top 25 stablecoins based on market capitalization, coming to similar conclusions regarding compliance.
One primary change Circle is requesting involves the rules governing cross-border stablecoin issuance, emphasizing the need for a model that allows European-licensed entities to operate alongside foreign issuers who are regulated in their own jurisdictions. The organization’s stance is that stringent restrictions might drive European users towards unregulated offshore services instead of bringing their activity within the oversight of EU authorities.
Implications of MiCA
Circle further elaborated on the implications of MiCA regarding access to existing global stablecoins and the development of new tokens within Europe. The firm notes that while MiCA has fostered a regulated issuer landscape, many of the stablecoins most commonly utilized remain outside of this governance structure. Circle referenced a 2020 impact assessment conducted by the European Commission, which cautioned that stringent exclusions of foreign stablecoins could lead to unregulated purchasing via offshore channels that lack MiCA’s consumer protections.
Growth of EURC and Reserve Requirements
Moreover, Circle’s EURC stablecoin has significantly increased in circulation, surpassing €400 million, marking a notable rise over the past year. This growth is credited to Circle’s French electronic money institution, which structures its reserves independent of corporate funds and ensures monthly third-party audits. The ability for certain customers to exchange EURC for euros at a one-to-one ratio reinforces the stability and usability of the token across various transactions including payments, foreign exchange, and treasury operations.
Circle’s plea extends to the reserve asset requirements, arguing that the current demands for issuers to maintain at least 30% of their backing assets in commercial bank deposits unnecessarily exposes them to credit and counterparty risks from banks. The thresholds increase to 60% for significant issuers, which Circle believes is overly restrictive. Instead, the company advocates for a liquidity-based approach that adapts to the conditions of reserve assets and their availability to fulfill redemption obligations.
European Central Banks and Regulatory Proposals
The European Central Banks have echoed similar sentiments regarding reserve requirements, suggesting the removal of minimum deposit mandates while keeping liquidity standards in place. In a report released on September 22, these banks proposed liquidity metrics for different timeframes, ranging from one to five days.
Circle further contests the limitations set by the European Banking Authority on reserve concentrations, specifically a 35% cap on exposures to a single sovereign issuer and a 1.5% limit on deposits with any individual banking counterparty. Circle argues these regulations could complicate large issuers’ operational frameworks and limit the types of government-backed, liquid assets that can be leveraged.
Recognition of Foreign-Regulated Stablecoins
Additionally, Circle has proposed a framework to recognize foreign-regulated stablecoins, which would involve assessments of the issuer’s home regulatory structure and enable them to distribute tokens in Europe via licensed institutions. This model would be in line with the GENIUS Act from the U.S., which aligns foreign digital payment issuers with regulatory standards comparable to those in the United States.
Hyperliquid Policy Center’s Submission
In parallel, the Hyperliquid Policy Center has leveraged the MiCA review to seek greater clarity on perpetual futures in its own submission, advocating for a regulatory approach based on economic characteristics instead of the underlying technology. They argue for the continued application of applicable derivative regulations without imposing additional restrictions meant for different financial instruments.
Conclusion
Overall, Circle’s comprehensive submission highlights significant regulatory challenges facing stablecoin issuance in the EU, advocating for a more flexible and inclusive framework that accommodates both established and emerging players in the global stablecoin market.
