ECB Seeks Broader Ban on Stablecoin Rewards Amid EU Regulatory Review

The European Central Bank and EU national central banks are pushing for stricter regulations on stablecoin rewards. They believe that allowing returns generated through crypto lending, borrowing, and staking could blur the distinction between electronic money and traditional bank deposits.

In a response to the European Commission's review of the Markets in Crypto-Assets regulation (MiCA), the European System of Central Banks (ESCB) argued that stablecoins should primarily function as payment instruments rather than savings products.

The ESCB wants to expand the prohibition on crypto-asset service providers paying remuneration on stablecoins beyond activities directly regulated under MiCA. This includes indirect yield mechanisms such as lending, staking, and other arrangements that could generate returns for stablecoin holders.

The central banks are concerned that allowing these products could create competitive imbalances within the EU financial system. They also propose changing MiCA's stablecoin reserve requirements to focus on reserve liquidity and how quickly assets can be converted into cash.