Circle, a leading stablecoin issuer, advocates for changes to the European Union’s Markets in Crypto-Assets (MiCA) regulation. During a recent meeting in Brussels, CEO Jeremy Allaire expressed concerns about the law’s impact on the crypto industry.
Allaire highlighted that MiCA‘s reserve requirements pose significant risks. The regulation mandates that stablecoin issuers hold 30% of their reserves in cash across multiple EU bank accounts.
Further, the requirement increases to 60% for significant e-money tokens, which Allaire believes introduces considerable bank risk.
MiCA’s Reserve Requirements
Patrick Hansen, Circle’s EU strategy and policy lead, supported Allaire’s concerns. According to Hansen, “bank deposits introduce credit and counterparty risks.” He also noted that even the European Banking Authority acknowledges these issues.
Hansen further mentioned that the reserve requirements in MiCA are set to be reviewed next year. He expects these provisions to be part of a broader review in two to three years.
Some industry experts speculate that a follow-up MiCA II regulation could be introduced, addressing more aspects of decentralized finance.
Circle’s Struggles
Circle is renowned for its USDC stablecoin, pegged to the US dollar. With a market cap of about $34 billion, USDC is the second-largest stablecoin after Tether’s USDT.
Circle’s compliance with MiCA was solidified when the French banking watchdog approved its e-money institution license on July 1, just after MiCA’s regime for stablecoins took effect.
Despite achieving compliance, Circle faces significant banking challenges. “It has been extremely hard for businesses in our sector to maintain stable banking ties,” Allaire said.
The 2023 banking crisis, which collapsed crypto-friendly banks like Silvergate Capital, Signature Bank, and Silicon Valley Bank, exacerbated the industry’s struggles.
In the UK, banks often refuse to work with crypto firms. Allaire, however, stated that Circle has maintained stable banking partnerships. The company relies on several major global systemically important banks across various regions.
Under MiCA, banks have a distinct advantage in offering crypto services. The regulation allows credit and e-money institutions to handle digital assets more readily.
European banks are increasingly interested in issuing stablecoins, accessing digital assets, and developing innovative payment systems.
Adjustments and Future Outlook
To comply with MiCA’s new rules, Circle has had to adjust its operations. The company now issues USDC from both the US and Europe. This dual issuance involves dealing with different regulatory requirements on either side of the Atlantic.
Allaire emphasized the importance of this adjustment. “USDC is now being issued out of two major jurisdictions with two distinct sets of prudential supervision and requirements,” he said.
Circle has successfully secured regulatory approval for this dual issuance, which Allaire described as a significant achievement.
The company’s ability to navigate these complex regulatory landscapes demonstrates its commitment to compliance and innovation. However, the company remains vigilant about the evolving regulatory environment.
Allaire and his team continue to engage with regulators to advocate for changes that would mitigate the risks introduced by MiCA’s current provisions.
