Circle, the issuer of the USDC stablecoin, has formally asked European Union policymakers to scrap requirements that would force stablecoin issuers to hold reserves in bank deposits, arguing instead for a broader set of eligible reserve assets, according to the company's submission to the EU's consultation process on the Markets in Crypto-Assets (MiCA) framework.

The USDC issuer laid out three core objectives in its response: replacing the bank-deposit mandate for reserve backing, preserving the ability to issue stablecoins across borders through co-issuance arrangements, and establishing a formal recognition route that would allow foreign-issued stablecoins to operate within the EU single market.

At stake is how issuers structure their reserve portfolios under MiCA, the EU's comprehensive crypto-asset regulation that governs stablecoins — referred to in the legislation as e-money tokens and asset-referenced tokens. Circle's position reflects a long-running concern among issuers that mandating bank deposits concentrates counterparty risk in commercial banks rather than diversifying it.

The bank-deposit question carries operational weight. Reserves held as deposits expose issuers to the solvency of the custodian bank, a risk that materialized during the March 2023 banking turmoil when the collapse of Silicon Valley Bank left $3.3 billion of Circle's own reserves temporarily inaccessible and briefly knocked USDC off its dollar peg. Circle has since restructured its reserve holdings, holding the bulk in short-dated US Treasuries custodied at institutions including Bank of New York Mellon, with cash deposits distributed across multiple banking partners.

Circle's push to preserve cross-border co-issuance addresses the structure of its European operations. In 2023, the company obtained an e-money license from the Autorité de Contrôle Prudential et de Résolution (ACPR), the French banking regulator, making France its EU regulatory base. Co-issuance arrangements allow a token to be issued jointly across jurisdictions, a model Circle argues should remain permissible so that euro- and dollar-denominated tokens can be distributed seamlessly within the bloc.

The third pillar of Circle's submission — a recognition route for foreign stablecoins — targets a gap in MiCA's current design. Under the regulation as it stands, non-EU stablecoins face a patchwork of national regimes, with member states applying different thresholds under Article 4 exemptions that permit limited use of non-compliant tokens for crypto-asset services. Circle wants a standardized pathway, arguing that the absence of one fragments the European market and pushes liquidity toward EU-issued alternatives regardless of user demand.

Central banks push back

Circle's positions meet resistance from monetary authorities. Central banks submitting to the same consultation process have demanded stronger safeguards around stablecoin reserves and issuance structures, according to the consultation responses. Their concerns center on monetary sovereignty and financial stability, with several authorities wary of arrangements that could allow large-scale dollar-linked tokens to circulate widely in the euro area.

The divergence sets up a substantive policy fight over how MiCA's implementing rules and any subsequent review of the framework will treat reserve composition. European banking lobbyists have separately argued for strict deposit-based requirements, a position that would channel stablecoin reserves into the commercial banking system and align issuers more closely with traditional prudential norms.

For Circle, the outcome carries direct commercial consequences. Europe represents a strategic growth market for the company, which listed on the New York Stock Exchange in June 2025. A rigid bank-deposit mandate would raise its funding costs and tie reserve management to bank credit spreads; a recognition route, by contrast, would let USDC compete for EU market share against locally issued tokens such as Société Générale's EURCV and other MiCA-compliant euro stablecoins without requiring full local re-issuance.

Business consequences cut both ways for European financial institutions. Banks stand to gain captive deposits if the mandate holds. Payment companies and crypto service providers, meanwhile, favor flexible reserve rules that keep transaction costs low and preserve access to the deepest dollar liquidity pools.

The consultation forms part of the EU's broader evaluation of MiCA's functioning since its full application in December 2024. Any amendment to the reserve rules or the introduction of a third-country recognition regime would require the European Commission to propose legislative changes, a process that typically runs on a multi-year timeline through the European Parliament and Council.

Policymakers are expected to weigh the consultation responses as the Commission prepares its assessment of whether MiCA's stablecoin provisions need revision. Market participants will be watching for the Commission's next steps on reserve eligibility and third-country tokens, with any legislative proposal likely to determine whether foreign issuers gain structured access to the EU market or face continued fragmentation across member states.