Europe Tightens Grip on Stablecoin Returns Amid Financial Stability Concerns

The European System of Central Banks (ESCB) is proposing to expand the ban on returns related to stablecoins in Europe. According to their response to the European Commission's consultation on the revision of the regulation on crypto-asset markets (MiCA), the ESCB believes that the current rule should cover indirect mechanisms such as lending, borrowing, and staking services for crypto-assets.

The ESCB is concerned that these mechanisms can turn a stablecoin into an income-generating instrument, blurring the boundary between electronic money and deposits. They fear that this could lead to a difference in treatment between banking actors and crypto platforms, which could compromise financial stability.

In addition to expanding the ban on returns, the ESCB is also proposing to review the European rules on stablecoin reserves. Currently, issuers are required to keep at least 30% of their reserves in bank deposits for less important stablecoins and up to 60% for more important ones. The ESCB suggests replacing this requirement with a mechanism based on available liquidity, where issuers would hold precise portions of their reserves that mature within a period of one to five business days.