TLDR
Circle is asking the EU to rewrite MiCAs stablecoin reserve rules so issuers are less tied to banks and can scale large, global stablecoins within the EU rulebook.
- Circle wants MiCAs requirement that 3060% of reserves sit in bank deposits replaced with a more flexible liquidity test, arguing it increases bank credit risk instead of reducing it.
- The firm also asks to loosen deposit limits like caps on exposure to a single sovereign and a single bank, and to preserve cross?border co?issuance of USDC and EURC.
- Nothing changes immediately, but this consultation will shape a 2027 MiCA overhaul that could determine which stablecoins are fully EU?regulated and how safely their reserves interact with banks.
Deep Dive
1. What Circle Is Challenging
Under MiCA, e?money token issuers must hold at least 30% of reserves as commercial bank deposits, rising to 60% for significant tokens such as large stablecoins. Circles consultation response argues this rigid minimum actually increases exposure to bank credit and counterparty risk and urges the EU to switch to a liquidity based requirement instead, similar to short?maturity assets rather than fixed deposit shares.
Circles position aligns with the European Central Bank on scrapping the fixed deposit minimums, but diverges on diversification. The ECB wants tighter concentration limits, while Circle wants to remove rules such as the 35% cap on exposure to a single sovereign and the cap on deposits with one bank equal to 1.5% of that banks assets, saying these would force large issuers to spread reserves across dozens of banks and constrain dollar?linked reserves.
Circle is trying to shift MiCA from how much sits in banks to how quickly reserves can be turned into cash, which would likely tilt reserves toward very short?dated government debt and repos.
2. Impact On Stablecoin Users And Market
Circle, which issues USDC and EURC, says MiCA has produced many regulated issuers but captured only a few of the largest global stablecoins, estimating just three of the top 25 by market value are MiCA?regulated so far. It argues that strict deposit mandates and concentration limits make it harder to run large, globally used stablecoins from within Europe, which could keep major tokens outside the EU perimeter.
Circle also asks the EU to preserve multi?issuance, where an EU?licensed entity co?issues a global stablecoin alongside a foreign issuer, and to create an equivalence?and?recognition path for foreign stablecoins. Its warning is that if MiCA is too rigid, volume may move to offshore exchanges and non?EU venues, weakening EU oversight without actually shrinking usage.
3. What To Watch In The MiCA Review
Circles submission is part of a European Commission consultation on revising MiCA, with a broader overhaul expected around 2027 to deal with foreign stablecoins, DeFi and yield?bearing structures. Central banks broadly agree that current deposit rules could transmit stress from a stablecoin run back into the banking system, but they favor tighter diversification and possible caps on banks funding from stablecoin issuers, while Circle favors more issuer flexibility.
Other stakeholders, such as DeFi founders and the European Banking Authority, are also pushing their own agendas on stablecoin yield, DeFi access and platform obligations. The key signals to watch will be the Commissions formal MiCA review report, draft legislative text on reserves and cross?border recognition, and whether EU regulators converge with issuers or with central banks on how much bank exposure is acceptable.
Conclusion
Circles challenge to MiCAs stablecoin deposit and concentration rules is not about weakening reserves, but about reshaping them toward liquidity and scale while keeping USDC and EURC inside the EU framework. How the EU balances issuer flexibility, bank stability and regulatory perimeter in the coming MiCA review will decide which stablecoins can grow as fully regulated instruments in Europe and how safely they interact with the banking system.
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