Circle, the issuer of the USDC and EURC stablecoins, has formally petitioned the European Commission to relax mandatory commercial bank deposit ratios under the Markets in Crypto-Assets (MiCA) regulation, warning that current rules expose digital asset issuers to credit and counterparty risks from the banking sector.
Why Circle Wants Commercial Bank Exposure Capped Under MiCA
The regulatory clash centers on how crypto-asset issuers must store the cash backing their tokens. Under the current structure of MiCA, electronic money token (EMT) issuers must maintain at least 30 percent of received funds in separate accounts at credit institutions. For tokens classified as significant, that threshold scales up to 60 percent. Patrick Hansen, director of EU Strategy and Policy at Circle, detailed the firm’s position in a response to the European Commission’s regulatory consultation. Circle argued that forcing issuers to hold reserves inside commercial banks exposes them to the risks of the banks where they maintain the money.
That vulnerability is not theoretical for the firm. Circle faced those risks firsthand in March 2023, when USDC temporarily lost its dollar parity after the company revealed that 3.3 billion dollars of its reserves were deposited in Silicon Valley Bank. Subsequently, the funds were made available after U.S. authorities protected the bank’s depositors. To prevent shocks, Circle is advocating for a shift away from rigid commercial bank deposit minimums toward a more flexible liquidity requirement. The European Central Bank shares a similar perspective on reserve requirements.
The Battle Over Reserve Concentration Limits and Sovereign Debt Caps
Beyond the primary deposit ratios, Circle’s submission targets two distinct concentration caps embedded within MiCA. The first restriction imposes a strict 35 percent ceiling on exposure to any single sovereign issuer. Circle contends that this restriction prevents a stablecoin in dollars from maintaining the majority of its reserves in high-quality liquid assets issued by the United States.
Compounding the issue is a second rule limiting exposure to each bank counterparty to 1.5 percent of that institution’s total assets. Circle pointed out how this threshold may force large-scale stablecoin issuers to distribute their reserves among dozens of banks, multiplying the relationships they must manage and supervise.
Defending Cross-Border Token Interoperability and Multiple Issuance Models
As the European Commission weighs whether MiCA remains fit for purpose, the policy debate has expanded to encompass international market access. Circle’s consultation filing emphasizes the necessity of preserving multiple issuance models. This architecture allows a regulated entity inside the European Union and a licensed counterpart abroad to issue a single stablecoin, letting tokens circulate across markets without splitting into versions that lose their connection to global liquidity.
According to the company, out of roughly 30 electronic money tokens authorized under MiCA, only three of the world’s top 25 stablecoins by market capitalization—specifically USDC, USDG, and EURC—are regulated under this framework. Circle argued that restricting multiple issuance structures would not eliminate the demand for international stablecoins, but would drive users toward providers outside the EU, without the protections of MiCA. To mitigate cross-border friction over a longer horizon, Circle proposed an equivalence and recognition system for stablecoins regulated outside Europe, where the European Banking Authority would recognize the specific issuer while distribution in the EU would be carried out by an institution with a local license.
Broader Industry Demands Facing European Regulators
Other market participants used the consultation window to push for structural adjustments. The Hyperliquid Policy Center urged the Commission to evaluate crypto perpetual futures under the existing EU framework for securities and derivatives, MiFID II. The group requested requirements adapted to the market structure of perpetual futures and the recognition of public blockchain ledgers as a means to comply with transparency and record-keeping obligations. Meanwhile, the Global Blockchain Business Council recommended clearer token classifications, proportional safeguards for stablecoins, and less duplication between MiCA and payment service rules.
The consultation period concluded on Wednesday, setting the stage for the European Commission to evaluate the responses as it drafts its assessment of MiCA and the activities that remain outside its current scope.
