Circle Challenges EU Stablecoin Rules, Proposes Liquidity-Based Reserve Requirement

Circle, the issuer of the USDC stablecoin, has submitted a request to change the bank deposit requirements applied to stablecoin reserves under the European Union's MiCA regulation. The company argues that the current 60% reserve requirement increases risks for stablecoin reserves, citing the collapse of Silicon Valley Bank in 2023 as an example. The bank's collapse left approximately $3.3 billion in USDC reserves stranded, causing the token to briefly lose its $1 peg. Circle is advocating for a more flexible system based on asset liquidity instead of a fixed-rate deposit requirement.

The company also objects to the rule limiting reserve exposure to a single country's government bonds to 35 percent, arguing that this limit makes it difficult for a dollar-based stablecoin to hold a significant portion of its reserves in US Treasury bonds. Circle's proposal is supported by the European Central Bank and some national central banks, which also advocate for a similar approach. The review of the MiCA rules is ongoing, and no formal decision has been made.