The European Banking Authority (EBA) has classified Circle’s USDC stablecoin as the first significant electronic money token (EMT) under MiCA regulations. Circle’s French subsidiary will now have two supervisors, the existing French regulator ACPR and the EBA, with the EBA taking on responsibilities for own funds, reserve assets, liquidity requirements, and recovery and redemption plans. For significant EMTs, MiCA requires 60% of reserves to be held at commercial banks rather than 30%, and capital requirements rise from 2% of reserves to 3%.
MiCA outlines seven criteria for significant EMTs, with any three triggering the classification. The EBA did not disclose which criteria USDC met, so we analyze the likely basis below.
The 60% reserve requirement may only last a couple of years. It was originally imposed so issuers could meet redemptions without dumping government bills. For Circle the requirement is relatively costly, not least because as a dollar token it needs banks willing to take large USD deposits. But the European System of Central Banks (ESCB) is now concerned that a stablecoin run could cause substantial outflows from the banking system. The collapse of Silicon Valley Bank, which caused USDC itself to lose its peg, showed the risk runs in both directions. With the European Commission consulting on MiCA 2, the ESCB has suggested dropping the bank deposit floor altogether, proposing instead minimum daily and weekly liquidity buckets starting from the 40% daily floor for significant stablecoins and 20% for others, as per the EBA’s draft liquidity standards.
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