The European Central Bank (ECB) has criticized the MiCA regulation, with stablecoin squeezing into focus.

The central banks of the EU member states are pushing for a review by the European Union (EU) of rules aimed at enhancing stablecoin 's safety while protecting reserves, and also directly linking token to banking systems. As reported on 22 September by Reuters in conjunction with Spain 's five-day bulletin, the ESCB wants to scrap the current requirement for fixed deposits ratios and instead use liquidity maturity testing to constrain reserve arrangements. This position will be submitted to the evaluation process of the European Commission regarding crypto asset 's market regulations (MiCA).

How the deposit floor creates a two-way channel

According to the European Banking Authority's (EBA) technical standards, MiCA currently requires non-significant token issuers to hold at least 30% of their official currency reserves as deposits with EU credit institutions. This percentage is increased to 60% for significant token .

Deposits provide the issuer with a source of cash for redemption, but deposits are essentially liabilities to banks. Mandatory allocation means that part of 8800010's reserve quality depends on the operating conditions of the depositing bank. In March 2023, during banking turmoil, Circle had stored some USDC in reserves at Silicon Valley Bank, which was hit by concerns about market withdrawals.

Conversely, issuers may concentrate on withdrawing bank deposits in the event of a large-scale redemption, turning what would otherwise be stable funds into highly liquid liabilities similar to wholesale capital. The ECB working paper also notes that issuers tend to concentrate their deposits within a small number of banks.

Proposed scheme: Replace fixed quotas with time-testing

Reportedly, the ESCB's alternatives focus on redemption timelines: at least 20% of non-major class token reserves must be redeemed within one business day and 30% within five business days; thresholds for major classes are 40% and 60%, respectively.

Under this framework, cash-settled and reverse repurchase agreements that can be terminated within the relevant timeframe as well as highly liquid financial instruments under the EBA Liquidity Coverage Ratio classification are eligible for inclusion in thresholds but do not qualify solely because of their short duration. Core assets such as Tier 1 sovereigns belong to a 0% reference discount category while Ultra High Quality Guaranteed bonds have no less than 7% reference discounts.

The draft also sets concentration caps: deposits of a single systemically important bank may not exceed 25% of reserves and 1.5% of the total assets of that bank; 0% discount category securities and money market instruments for a single issuer are limited to 35% of reserves.

This adjustment may improve issuers' earnings, as short-term sovereign or repurchase positions tend to yield higher returns than bank deposits and part of the reserves, income and risk will be shifted to government bonds and financing markets. However, large-scale redemptions could still force issuers to sell securities or unbuy them, transferring pressure to the sovereignty bond market; declining bond prices can also reverse a weakening in reserve value. In other words, the new rules are about reallocating risks rather than eliminating them.

Limited effect on Tether disputes

Tether CEO Paul Adorno said that the ESCB's position confirmed its previous warnings about MiCA compulsory bank deposit ratios. However, removing the deposit threshold would not allow USDT to gain EU authorization and would not resolve Tether 's objections to other provisions such as non-Euro stablecoin restrictions. The overall regulatory framework of reserve isolation, redemptions, audits and prudential regulation will remain in place.

The essence of this decision in Europe is the design orientation of the redemption security mechanism: deposit quotas emphasize where reserves are stored, while time-testing stresses how quickly they can be liquidated. Whether or not a new scheme will work depends on whether issuers respond orderly to redemptions under pressure without triggering disorderly sell-offs elsewhere in the financial system.