One of Europe’s most conservative stablecoin rules was designed to make reserves safer. The European Central Bank and the EU’s national central banks now argue it may create a different kind of risk.
Under MiCA, stablecoin issuers generally have to hold at least 30% of reserves in bank deposits. For significant issuers, the share rises to 60%.
The European System of Central Banks has recommended removing that minimum-deposit requirement and replacing it with liquidity rules based on how quickly reserve assets mature, according to a consultation response reported by Reuters on September 22.
The argument is counterintuitive: forcing stablecoin reserves into banks can make both the stablecoin and the bank more vulnerable to each other.
Why MiCA Put So Much Cash in Banks
A stablecoin promises redemption at par. That promise is only credible if the issuer holds assets that can be turned into cash quickly when holders want out. Bank deposits appear to solve that problem because they are nominally liquid and easy to value.
MiCA therefore requires 30% of reserve assets to sit in bank deposits, rising to 60% for significant e-money tokens or asset-referenced tokens. The rest of the portfolio must remain in highly liquid, low-risk assets subject to additional rules.
The design reduces maturity risk at the issuer. It also links the issuer directly to the health of the banks holding the cash.
The ECB Learned the Other Side of That Trade-Off From USDC
The ECB has been warning about this mechanism for months. In a June speech, Executive Board member Piero Cipollone pointed to USDC’s March 2023 depeg after Circle disclosed deposits at the failing Silicon Valley Bank.
That episode demonstrated that a reserve made of “cash at a bank” is not the same as risk-free central-bank money. The stablecoin can become vulnerable to the bank.
The reverse can also happen. If stablecoin holders rush to redeem, the issuer may rapidly withdraw large deposits. A bank that had come to rely on those balances loses funding exactly when market stress is already elevated.
The ESCB’s consultation response describes stablecoin-issuer deposits as potentially less stable and more market-sensitive than ordinary retail deposits.
The Proposed Fix Is About Maturity, Not About Making Reserves Riskier
The central banks are not proposing that issuers fill reserves with speculative assets. Reuters reports that they want MiCA to specify minimum shares of assets maturing within one working day and within five working days rather than forcing a fixed share into bank accounts.
That shifts the rule from “where is the money held?” to “how fast can the reserve become money?” Short-dated government instruments and other qualifying liquid assets can satisfy redemption needs without concentrating as much funding exposure inside commercial banks.
The difference is important. A reserve portfolio can be highly liquid without being mostly bank deposits. In fact, the ECB’s own research has repeatedly noted that the current deposit requirement can create contagion in both directions between stablecoins and banks.
Europe Is Building Two Different Answers to the Same Settlement Problem
The recommendation lands one day after the ECB launched Pontes, the Eurosystem bridge that allows distributed-ledger transactions to settle in central-bank money. Optimisus covered Pontes and its challenge to stablecoin settlement.
The two stories point in opposite directions but solve the same problem. Pontes gives regulated institutions a way to avoid private settlement money for tokenized securities. The MiCA reserve debate asks how private digital money should be backed when stablecoins are used anyway.
That is increasingly the real divide in tokenized finance: not blockchain versus no blockchain, but which form of money sits on the cash side of a blockchain transaction.
The Multi-Issuance Fight Is Still Unresolved
The ESCB also reiterated its concern about multi-issuance models, where a global stablecoin issuer treats EU-issued tokens as interchangeable with tokens issued elsewhere. The central banks argue that the current MiCA framework does not allow that structure without additional safeguards.
That issue matters for global stablecoins because liquidity naturally wants one fungible token. Regulation naturally wants reserves and redemption obligations to remain inside the jurisdiction supervising them. Those goals can conflict.
Europe has already forced crypto firms through a licensing transition this year, a process Optimisus covered when the MiCA deadline pushed unlicensed providers out of the market. Reserve design is the next layer of that framework being stress-tested.
This Is Not Deregulation
Removing a mandatory bank-deposit percentage sounds like loosening the rules. The motivation is the opposite. European central banks think the current rule may be creating the wrong type of safety.
A reserve can be conservative and still be badly structured. If too much is concentrated in commercial-bank deposits, an issuer inherits bank risk and a bank inherits unstable wholesale funding from the issuer.
The proposed change would not settle the stablecoin debate in Europe. It would make one thing clearer: regulators are moving from asking whether reserves are “safe” in the abstract to asking how those reserves behave under stress. That is a much more useful question.
This is not financial advice.
Sources
- Reuters — ECB, EU central banks suggest dropping stablecoin deposits rule — Current reporting on the ESCB consultation response.
- ECB — From money market funds to stablecoins: lessons for central banks — ECB discussion of MiCA reserve rules, bank-deposit exposure and the 2023 USDC episode.
- ECB — Stablecoins and monetary policy transmission — Background on MiCA liquidity and reserve requirements.
