ESCB Seeks MiCA Framework Overhaul to Reduce Stablecoin Reserve Risks
The European System of Central Banks (ESCB) is pushing to loosen parts of the upcoming MiCA framework governing how stablecoin issuers hold reserves. In a response published on Tuesday, the ESCB argues that mandatory requirements tying stablecoin reserves to bank deposits could generate liquidity stress for banks during periods of rapid redemption.
The ESCB proposes replacing the bank-deposit thresholds with liquidity rules calibrated to how quickly reserve assets can be used, specifically focusing on assets maturing within one and five working days. The proposal also highlights instruments such as overnight reverse repurchase agreements (repos) and short-term sovereign bonds as potential reserve tools.
The ESCB's approach echoes concerns raised by stablecoin issuers, including Tether's CEO Paolo Ardoino, who warned that MiCA's bank-deposit reserve requirement could create systemic risks for both banks and issuers. In a hypothetical example, Ardoino illustrated how a mismatch between depositor availability and redemption demands could contribute to a liquidity crunch.
The ESCB's response suggests that the European Commission will need to balance MiCA's original bank-deposit intent with the liquidity-time-bucket approach advocated by central banks and aligned with EBA draft rules. The final MiCA implementation details will determine how reserve behavior is measured and enforced, especially during periods of market stress.