The European Central Bank and national central banks across the European Union have called for MiCA’s stablecoin remuneration ban to cover lending, borrowing, staking and other arrangements that can generate indirect returns for token holders.
Summary
- ECB backed central banks want MiCA’s stablecoin yield ban extended to lending, borrowing and staking products.
- The ESCB said indirect returns could allow platforms to turn stablecoins into yield bearing arrangements despite existing restrictions.
- Central banks proposed replacing MiCA’s minimum bank deposit requirements with reserve rules based on one to five day liquidity.
According to the European System of Central Banks, the restriction should extend beyond services already regulated under the Markets in Crypto Assets framework because crypto platforms could structure products outside MiCA that effectively turn stablecoin holdings into yield bearing arrangements.
“Electronic money is intended to be used for making payments and not as a means of saving,” the ESCB said in its 57 page response to the European Commission’s consultation on reviewing MiCA.
The central banks said they “continue to support the prohibition on CASPs paying remuneration on stablecoins,” referring to crypto asset service providers. Existing restrictions should cover both direct payments and returns generated through other products, according to the response.
Stablecoin yield ban could extend to lending and staking
MiCA prevents issuers of electronic money tokens and crypto asset service providers from granting interest in relation to those tokens. The ESCB wants EU lawmakers to make clear that the restriction cannot be bypassed by placing stablecoins inside lending, borrowing, staking or similar products.
Stablecoins can be “transformed into yield-bearing arrangements through lending, staking or other layered structures,” the central banks said. Such products could provide holders with an economic return even when the stablecoin itself does not directly pay interest.
The ESCB said allowing such arrangements could weaken the regulatory distinction between electronic money and bank deposits while creating unequal conditions between crypto companies and regulated financial institutions.
“Maintaining and, where necessary, strengthening the prohibition, covering both direct and indirect forms of remuneration, should be a clear legislative priority,” the group said.
The position closely resembles a dispute that has shaped debate over stablecoin rewards in the United States.
As crypto.news previously reported, eight banking associations asked U.S. lawmakers in September to tighten the CLARITY Act’s restrictions on stablecoin incentives. The groups argued that rewards linked partly to balances or holding periods could operate like interest on bank deposits even when another condition was attached to the payment.
Banking groups have focused on the potential effect on deposits because those funds are used to support mortgages, business financing and other lending. In July, the American Bankers Association, Independent Community Bankers of America and 76 state banking associations sought tighter restrictions on incentives that could encourage customers to hold stablecoins instead of keeping money in bank accounts.
Citigroup CEO Jane Fraser raised a similar concern in August, warning that stablecoin reward programs could reduce deposits available to lenders. Fraser supported passage of the CLARITY Act but said changes were still needed to its stablecoin reward provisions.
The U.S. legislation later failed to advance in a 50 to 49 procedural vote on Sept. 15, with the debate covering stablecoin rewards as well as ethics and other provisions.
ECB backed banks want MiCA reserve rules changed
Alongside the remuneration restrictions, the ESCB proposed changing how MiCA regulates reserves backing stablecoins.
Current EU rules require issuers of tokens referencing official currencies to keep at least 30% of the amount referenced in each currency as deposits with credit institutions. The requirement rises to 60% for significant tokens.
The central banks want those minimum deposit requirements removed because large stablecoin issuers could become an unstable source of funding for banks. If an issuer faced heavy redemptions, it could need to withdraw a large deposit over a short period, according to the ESCB.
Such withdrawals could expose the receiving bank to sudden funding pressure at the same time the stablecoin issuer is trying to obtain cash to satisfy redemption requests.
Instead of requiring a fixed share of reserves to remain in bank deposits, the ESCB proposed rules based on how quickly reserve assets can mature or be converted into cash.
The approach would require issuers to maintain specified portions of their reserves in assets with maturities ranging from one to five working days, giving them liquid assets that can be used to handle redemptions without relying as heavily on withdrawals from banks.
Existing MiCA rules already require reserve assets to be managed in a way that addresses liquidity risks arising from holders’ permanent redemption rights. EU law requires the European Banking Authority, working with the European Securities and Markets Authority and the ECB, to specify liquidity requirements covering daily and weekly maturities.
Liquidity rules would focus on one and five day maturities
The ESCB pointed to European Banking Authority standards as a basis for the proposed structure.
Under the liquidity framework, significant stablecoins referencing official currencies would need at least 40% of reserve assets available within one working day and 60% within five working days. For non significant tokens, the corresponding thresholds would be 20% and 30%.
EBA standards were calibrated partly using observed deposit outflows connected with crypto related events. The framework covers cash and other reserve assets according to how quickly they can mature, be withdrawn or otherwise become available to meet redemption demands.
The proposal would therefore separate the amount of liquidity an issuer needs from the amount it must place directly with commercial banks. Stablecoin issuers would still need sufficient liquid reserves, but compliance would depend more heavily on the maturity profile of those assets.
The ESCB’s position comes as European authorities continue refining MiCA after its stablecoin provisions began applying in June 2024. The framework introduced EU wide requirements for asset referenced tokens and electronic money tokens, including reserve management, redemption rights and additional requirements for tokens classified as significant.
MiCA requires reserve assets to be legally and operationally segregated from an issuer’s own estate, while significant tokens face additional prudential requirements and heightened supervision.
European regulators have previously focused on redemption risk when setting the liquidity framework. The EBA’s technical work kept separate one day and five day liquidity buckets, while significant tokens face higher thresholds because of the potential scale of redemptions.
The ESCB’s latest proposal would retain that liquidity based approach while removing the rule forcing issuers to keep a minimum 30% or 60% of relevant reserves as bank deposits.
In the United States, banks have pursued a related argument from the opposite side of stablecoin balance sheets. Their focus has been on preventing reward paying stablecoins from drawing deposits away from lenders, while the ESCB’s reserve proposal addresses the risk created when stablecoin issuers themselves place large deposits inside banks.
The dispute over rewards remained active ahead of the September CLARITY Act vote. Banking groups argued that incentives tied to stablecoin balances could resemble deposit interest, while crypto companies sought to preserve rewards linked to transactions and other platform activity. A Senate compromise had sought to restrict passive yield while retaining some activity based incentives.
The ESCB wants the EU prohibition to cover indirect remuneration regardless of whether the return comes directly from the stablecoin issuer or through lending, staking or another layered product offered around the token.
