ECB plans to extend the stablecoin earnings ban to crypto lending and staking sectors

European Central Bank proposes tougher rules on stablecoin yields, concerned about the impact of banking system circumvention

The European Central Bank (ECB) and the European System of Central Banks (ESCB) have recently proposed a series of revisions to the regulation of stablecoins under MiCA, which focuses on two issues: firstly, stablecoins can circumvent current prohibitions by shifting income payments to holders through a tiered structure; secondly, the allocation of bank deposits in reserves may impact the banking system under stressful circumstances. This proposal echoes the legislative debate around the Clarity Act in the United States, showing that regulatory control over stablecoin earnings has become a common focus for global regulators.

Profit bans or loopholes in bribery hierarchies

In its opinion, the ECB noted that stablecoin issuers could convert interest-free stability coins into yielded arrangements by means of loans, pledges or other overlapping arrangements, thereby materially circumventing the prohibition on direct payments to holders. The Bank argued that EU rules should block this path in advance and prevent de facto interest payment products resulting from such arrangements outside the regulatory text.

This position is similar to the US banking industry's concerns. Earlier, eight U.S. banking groups joined forces in a letter to senators demanding tightening restrictions on stablecoin earnings contained in the Clarity Act, arguing that crypto platforms could offer interest-like returns and compete with bank deposits. The Clarity Bill was subsequently defeated by 49 votes to 50 in a procedural vote, where ethics clauses were also an important factor.

Proposal to abolish reserve bank deposit ratio requirement

Regarding reserve management, the European System of Central Banks proposes to remove a provision in MiCA requiring stablecoin issuers to hold part of their reserves as bank deposits. The current rule requires that at least 30% of an issuer's reserves are held by credit institutions and is recognised as significantly higher than 60% for those who issue stablecoins.

The European System of Central Banks (ESCB) believes that this regulation may put banks under sudden withdrawal pressure when a squeeze occurs. If there is a large-scale redemption of stablecoins, the issuer will need to quickly take out deposits from the bank in order to meet the deposit and lending institutions will suffer liquidity shocks as a result. In other words, large stablecoin deposits could become an unstable part of the source of funds for banks.

Regulatory focus shifts from lithium storage to lithium conversion rate

As an alternative, the European System of Central Banks proposes to replace deposit ratio requirements with maturity rules that require issuers to hold a certain proportion of reserve assets maturing within 1-5 business days.

This shift shifts the focus of regulation from where reserve assets are stored to how quickly they can be converted into cash. The logic is that as long as reserves have sufficient short-term liquidity, issuers do not need to rely on bank deposits for central redemption and the banking system correspondingly avoids the risk of a rapid withdrawal of funds.