Circle wants the EU to ease strict bank reserve rules for stablecoins and let in foreign-regulated tokens. Tether warns that forcing reserves into banks could create new risks for crypto.
Circle and Tether, two of the biggest stablecoin issuers, now agree on one thing: the European Union's new reserve rules for stablecoins could cause new problems instead of fixing old ones. Both companies are pushing back against the Markets in Crypto-Assets Regulation (MiCA). They say the rules, as written, could hurt the stability they are supposed to protect.
Reserve rules under fire
The main fight is over MiCA's demand that stablecoin issuers keep at least 30% of their reserves in commercial bank deposits. For tokens labeled as significant, that jumps to 60%. These numbers, confirmed in recent regulatory reports and echoed by Circle and the ECB, are some of the toughest in the world for fiat-backed digital assets. Circle, which issues USDC, wants the EU to swap this rule for a broader liquidity standard. The company says forcing issuers to pile reserves into banks raises the risk of bank failures and counterparty problems-the very risks regulators say they want to avoid.
Only 3 of the top 30 stablecoins currently comply with MiCA's reserve requirements, highlighting a major gap between regulation and market reality.
Tether's CEO Paolo Ardoino has raised the same alarm. He warns that big stablecoin deposits could put pressure on banks during stress or mass redemptions. Tether has refused to seek an EU license under MiCA, calling the reserve rule a dealbreaker. There's a twist: Circle is trying to comply with MiCA, while Tether is staying out, but both now say the reserve setup could backfire.
Push for global access
Circle is also asking for a system that would let foreign-regulated stablecoins operate in the EU without needing full EU authorization. Under this idea, the European Commission would check if a foreign regulator's rules match EU standards. If they do, the European Banking Authority could recognize individual issuers. These issuers would stay under their home country's main supervision but could distribute tokens through local partners. This would be a different path from MiCA's current rule, which usually forces e-money token issuers to get EU approval for public trading or distribution.
Circle also wants to keep multi-issuer setups, where a MiCA-approved European company co-issues a global stablecoin with a foreign-regulated partner. The company says banning this model could drive European users to offshore platforms and tokens outside MiCA's reach. In its official stance, Circle also wants to scrap the 35% cap on exposure to a single sovereign and the 1.5% limit on deposits with any one bank. Circle argues these rules could force issuers to split reserves across many banks, making things more complex and risky.
The European Central Bank and the European System of Central Banks have proposed shifting from fixed deposit percentages to liquidity-based reserve standards, with EBA draft guidelines in 2024 suggesting 40%/60% liquidity targets for significant tokens and 20%/30% for non-significant ones.
Regulatory caution and market impact
Regulators are not convinced. The European Banking Authority has told the Commission to tighten MiCA's controls on third-country multi-issuer stablecoin setups. They warn that key functions like reserves and redemptions could slip outside EU oversight. The Commission's MiCA review closed on September 30. Any changes are still under review. For now, foreign stablecoin issuers must follow the current rules, with no clear way to broader EU access.
Industry reports show that only three of the top 30 stablecoins by market cap meet MiCA's reserve rules. This shows how far most of the sector is from compliance. Most global stablecoin liquidity now sits outside the EU's reach. The fight over reserve rules and cross-border access comes as stablecoins remain central to crypto trading, payments, and DeFi. As reported earlier, tokenized portfolios and stablecoin-backed products are growing, but regulation is still a major roadblock.
Circle's recognition plan does not give foreign stablecoins an easy way into the EU market. The European Commission's review could bring new laws, but for now, nothing changes. Both Circle and Tether are betting that the EU will have to rethink how it handles risk, liquidity, and access for stablecoins. The current rules could split the market and push users to less regulated options. That would go against MiCA's goals. The EU's next move will show if it is ready to adjust its rules to fit global stablecoin flows, or if it will stick to a framework that may be too rigid for the market.
Stablecoin reserve rules are now a key battleground in global crypto regulation. Fiat-backed stablecoins like USDC and USDT are usually backed by a mix of cash, short-term government debt, and bank deposits. How these reserves are held and managed affects whether issuers can meet redemptions and keep the token's value steady. Rules that force reserves into banks may lower some risks but create others, like exposure to bank failures or liquidity shortages. As stablecoins become more common in payments and DeFi, how their reserves are structured and watched will stay at the center of the debate for both issuers and regulators.
