Circle Proposes Overhaul of EU Stablecoin Regulations

Circle, the issuer of USDC and EURC, has submitted a proposal to the European Commission to modify the MiCA regulations for stablecoins. The current rules require issuers to hold at least 30% of their reserve assets in commercial bank deposits, rising to 60% for significant e-money tokens. Circle argues that this requirement concentrates reserves in the banking system and proposes replacing it with a less rigid liquidity rule.

The company also wants to remove the EBA Level 2 cap limiting a reserve's exposure to a single sovereign issuer to 35%. This would allow issuers to hold primarily high-quality liquid sovereign assets, which Circle believes is particularly relevant for USDC, a USD-denominated token. Additionally, Circle wants to remove the 1.5% limit of a bank's total assets for each banking counterparty, which would reduce the operational complexity and risk for larger issuers.

Circle's proposal also includes a broader recognition system for stablecoins issued outside the EU, which would allow foreign issuers to remain supervised in their home jurisdiction and distribute their tokens in the EU through a locally licensed institution. The company cites the Commission's 2020 MiCA assessment, which warned that excluding foreign stablecoins from EU markets could push users toward offshore issuers and outside MiCA protections.

The Commission has not yet adopted the proposed changes, and the effect on USDT and redemption terms remains unclear. The proposal is part of a consultation process, and the final rules will depend on the Commission's decision.