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From 11/12, USDC in the EU will come directly under EBA supervision. A bunch of accounts have posted this as “a huge compliance win, making it safer.” But after reading the actual rules, I find it a bit ironic: much of what’s supposedly stricter involves forcing issuers to put more reserves in banks. And the only time USDC has ever seriously depegged was precisely when money was stuck in a bank—in March 2023, when Silicon Valley Bank collapsed.

Let’s get the facts straight first. On 10/14, the EBA designated USDC issued by Circle’s EU entity, Circle Internet Financial Europe SAS, as the first “significant” e-money token under MiCA. It’s the only one out of 45. Starting 11/12, direct EBA supervision will take over from France’s ACPR for own funds, reserve assets, liquidity, and recovery and redemption plans. Corporate governance, shareholders, and the fitness and propriety of senior management will remain under the ACPR.

What does “significant” mean? Under Articles 58 and 45 of MiCA, the own-funds requirement rises from 2% to 3% of average reserves, and independent audits go from once a year to once every six months. Most importantly, there’s a minimum bank deposit requirement: 30% of reserves for ordinary EMTs, and, according to the EBA’s interpretation, 60% for significant ones. There’s been ongoing debate in the industry over whether this 60% applies to EMTs, with some saying the EBA has overreached in its interpretation. But for now, that’s the interpretation being applied.

Circle put it bluntly in its 10/1 feedback to the European Commission: mandatory deposits tie issuers to banks’ credit and counterparty risks. It also pointed to the cap limiting exposure to any one bank to 1.5% of that bank’s total assets; at scale, issuers would need to work with dozens of banks at once. In other words, regulators want to reduce stablecoin risk, but the result is to deepen the links between stablecoins and the banking system. The EBA’s own documents acknowledge the need to guard against “contagion.”

For ordinary holders, nothing changes on-chain. USDC issued in the EU and the US can be exchanged for one another; there’s no new deposit insurance, and redemption terms aren’t changing. What really changes is the balance sheet of Circle’s EU operations: deposit yields generally lag short-term government debt, and the 3% capital requirement plus semiannual audits are also costs. The profit margin on this business will only be squeezed, not improved. I couldn’t find a definitive figure for how much in reserves the EU entity holds in public materials, so it’s hard to say how significant the impact will be.

So don’t equate “regulated” with “safer.” The rules curb misuse of funds and reckless investment, but shift risk from the government bond market to bank balance sheets. The next time a mid-sized European bank gets into trouble, first check whether any of USDC’s EU reserves are held there.
#USDC #MiCA

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The CNMV is consulting until Monday on extending its Complaints Department to crypto-assets

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