The European Central Bank (ECB) and the 27 national central banks of the European Union have formally requested that Brussels eliminate a key provision within the Markets in Crypto-Assets (MiCA) regulation. The rule in question requires large stablecoin issuers to hold 60% of their reserves in commercial bank deposits, a clause Tether has already cited as a primary reason for not seeking an EU license.
This development places the EU’s most powerful financial regulator in an unusual alignment with the world’s largest stablecoin issuer, Tether. The request from the European System of Central Banks (ESCB) was submitted as part of the European Commission’s ongoing review of MiCA.
Central banks warn of systemic risk from deposits
However, the two parties arrived at the same conclusion for entirely opposite reasons, creating a complex new dynamic in the regulation of digital assets across the bloc.
In its formal submission, the ESCB argued that funds backing stablecoins do not represent stable funding sources for commercial banks. The group, which includes the ECB, warned that the value of these deposits could fluctuate dramatically with token redemptions and creations. This volatility poses a direct threat to the stability of the banking sector itself.
According to the central banks, a scenario involving heavy redemptions of a major stablecoin could trigger a sudden and massive withdrawal of funds from commercial lenders, potentially creating a liquidity crisis overnight. This concern for systemic financial stability is the driving force behind their request.
It’s a move designed to protect traditional financial institutions from the perceived volatility of the crypto market, a stark contrast to the industry’s typical focus on protecting crypto assets from traditional finance.
Instead of the deposit requirement, the ESCB has proposed an alternative. They recommend that stablecoin issuers be required to hold a minimum portion of their reserves in highly liquid assets that mature within one to five business days.
This approach would ensure that reserves are readily available to meet redemption requests without jeopardizing the balance sheets of commercial banks. The filing also noted that regulators face “material challenges” enforcing existing rules, as many non-compliant crypto firms continue to service EU customers from abroad.
Tether’s long-standing safety concerns
The 60% bank deposit rule is not a new point of contention. Tether Chief Executive Paolo Ardoino has been a vocal critic of the provision since 2024, arguing it makes stablecoins less safe for consumers.
Under MiCA, stablecoin issuers are tiered; standard issuers must hold 30% of reserves in bank deposits, while those deemed “significant,” a category Tether’s USDT would certainly fall into, face the higher 60% threshold.
Ardoino’s argument centers on the risk of bank failure. With European deposit insurance schemes only protecting funds up to €100,000, forcing a multi-billion dollar stablecoin issuer to place the majority of its reserves in bank accounts exposes those funds to significant counterparty risk.
A failure at a depository institution could wipe out a substantial portion of the reserves backing the token, directly harming holders. This mirrors wider industry discussions around new SEC crypto custody changes in the United States, which also grapple with how to best secure customer assets.
“When MiCA becomes safer for consumers and stablecoin issuers, then we might reconsider,” Ardoino stated previously, making it clear that Tether would not seek an EU license under the current framework.
The central conflict is clear: Ardoino wants to protect Tether’s reserves from banks, while the central banks want to protect their banking system from the risks posed by stablecoin reserves. It is this fundamental disagreement on the nature of risk that makes their shared opposition to the rule so notable.
A complex path forward for EU regulation
The divergent motivations of the ECB and Tether highlight the intricate challenges of integrating digital assets into a traditional regulatory environment. The situation has already had tangible market consequences, with fintech giant Revolut delisting USDT for its European customers this year in anticipation of MiCA’s full implementation. The move was seen as a direct response to Tether’s lack of a MiCA license.
Other industry players are also maneuvering. Circle, the issuer of the second-largest stablecoin USDC, has reportedly backed a rule change that could pave the way for Tether’s return to the European market. Such industry-led initiatives to engage with regulators are becoming more common, with some organizations even proposing a crypto regulatory council to streamline dialogue.
The ultimate goal for these firms is a clear, predictable, and safe operating environment.
The opposing viewpoints of the industry and regulators create a push-and-pull that will shape the future of finance in the region. How regulators balance the need for financial stability with the demand for innovation will determine the trajectory of products like stablecoins and even more complex instruments related to onchain tokenized stock trading.
What happens next for MiCA and stablecoins
Despite the high-profile intervention from the ESCB, the deposit rule remains the law of the land in the European Union. The European Commission’s consultation period for the MiCA review is set to close on September 30, after which it will consider the feedback.
Any formal amendment to the regulation would require a new legislative process involving EU lawmakers, a procedure that could take many months or even longer.
Until then, Tether remains without authorization to operate officially within the EU, and the 30% and 60% deposit requirements for other licensed stablecoin issuers are still in effect. However, the ECB’s public stance adds considerable weight to the argument for reform. It is now much more likely that the European Commission will propose changes to this specific part of the legislation.
Should the rule be repealed or amended to the ECB’s satisfaction, it would remove the single largest public objection Tether has raised against obtaining a MiCA license.
Such a move could dramatically reshape the competitive landscape for stablecoins in Europe, potentially re-opening one of the world’s largest markets to USDT and forcing competitors like Circle to adjust their strategies. The final decision rests with Brussels, but the battle over how to safely manage stablecoin reserves is far from over.