EU Central Banks Seek Sweeping Stablecoin Regulation Overhaul

The European System of Central Banks (ESCB) has proposed significant changes to how stablecoins are regulated under EU law. The ESCB laid out its position in a 57-page response to the European Commission's review of the Markets in Crypto-Assets Regulation (MiCA).

The first proposal targets products that generate indirect returns on stablecoin holdings, effectively paying users for holding these assets through lending, borrowing, or staking services. The ESCB argues that allowing such indirect returns risks collapsing the legal distinction between electronic money tokens and commercial bank deposits.

The central banks also propose removing deposit minimums currently set at 30% of reserves for stablecoins not designated as significant and 60% for those that are. Instead, they want to introduce liquidity-based requirements drawn from draft European Banking Authority standards. These standards would require significant stablecoins to hold at least 40% of reserves in assets maturing within one working day and 60% within five working days.

Tether CEO Paolo Ardoino has previously flagged the same risk, describing a scenario where an issuer could face a shortfall if banks lent out most of its reserves and mass redemptions arrived at once. The ESCB's proposals come after US banking groups urged senators to restrict stablecoin yield products in the CLARITY Act, citing concerns that crypto platforms could offer deposit-like returns competing directly with banks.