- Circle says the regulation could increase stablecoin reserve exposure to banking-sector credit and counterparty risks.
- The company supports a liquidity requirement allowing part of reserves to be converted to cash within one to five business days instead of imposing a strict minimum bank-deposit requirement.
- Circle and the Hyperliquid Policy Center have submitted proposals during a review of MiCA-related rules, but the European Commission has not accepted or adopted them.
Circle Raises Concerns About Stablecoin Reserve Rules
Circle has argued that the regulation could expose stablecoin reserves to greater credit and counterparty risks within the banking sector. The company pointed to the 2023 collapse of Silicon Valley Bank as an example, noting that approximately $3.3 billion of $USDC reserves remained with the bank. The situation caused $USDC to briefly lose its $1 peg.
As an alternative to a strict minimum requirement for bank deposits, Circle is advocating for a liquidity standard that would allow a certain portion of stablecoin reserves to be converted into cash within one to five business days. The European Central Bank and some national central banks also support a similar approach, according to the source.
Circle Challenges Government Bond Concentration Limit
Circle also objected to a rule that limits reserve exposure to the government bonds of a single country to 35 percent. The company said the restriction could make it difficult for a dollar-based stablecoin to maintain a significant share of its reserves in US Treasury bonds.
The company’s position forms part of a wider review involving stablecoin reserve requirements and related regulatory provisions. The proposals address how reserve assets should be held while balancing liquidity needs, banking-sector risks and the composition of assets backing dollar-based digital currencies.
Hyperliquid Policy Center Seeks MiFID II Treatment
During the same review, the Hyperliquid Policy Center requested that perpetual futures contracts on the chain be assessed under the existing MiFID II derivatives rules rather than under the Markets in Crypto-Assets Regulation, commonly known as MiCA.
Both the Circle and Hyperliquid Policy Center positions are requests submitted by industry organizations. They do not mean that the European Commission has accepted the proposals or amended the MiCA rules. A formal assessment and any potential legislative process must be completed before a final decision is made.
Why This Matters
The debate highlights the regulatory importance of stablecoin reserve management, particularly the speed at which reserve assets can be accessed during periods of banking stress. Circle’s proposal focuses on liquidity access and the risks associated with concentrating reserves in bank deposits, while its objection to the 35 percent limit concerns the ability of dollar-based stablecoins to hold US Treasury bonds.
The review also illustrates the broader effort to determine which European regulatory framework should apply to crypto-related financial products. The next steps depend on the European Commission’s assessment and any subsequent legislative action; no change to the cited MiCA rules has yet been confirmed.
Frequently Asked Questions
What stablecoin risk has Circle identified?
Circle says the regulation could increase stablecoin reserve exposure to credit and counterparty risks in the banking sector. It cited the 2023 Silicon Valley Bank collapse, when approximately $3.3 billion in $USDC reserves remained with the bank and the token briefly lost its $1 peg.
What alternative does Circle support?
Circle supports a liquidity requirement allowing a certain portion of reserves to be converted into cash within one to five business days, rather than a strict minimum deposit requirement for bank deposits.
Have the proposed MiCA changes been approved?
No. The proposals were submitted by industry organizations, and the European Commission has not accepted them or amended the MiCA rules. A formal assessment and potential legislative process are still required.
This is not investment advice.