MiCA: The ECB Wants to Tighten the Ban on Returns on Stablecoins

Europe could tighten the rules on stablecoins. In its response to the European consultation, the European System of Central Banks defends an expanded ban on returns related to tokens. The ECB targets indirect mechanisms related to lending, borrowing, or staking. The goal is to preserve the distinction between electronic money and deposits, while the MiCA revision opens debates on the rules of the European market. The proposal also directly concerns platforms offering returns.

The ECB Wants to Close the Door on Indirect Returns

The European System of Central Banks (ESCB) first supports maintaining the ban on remuneration paid directly on stablecoins. In its response to the European Commission’s consultation on the revision of the regulation on crypto-asset markets (MiCA), the ESCB nevertheless believes this rule must go further. MiCA should cover certain activities that can produce a return without presenting it as direct interest.

The ECB especially cites lending, borrowing, and staking services for crypto-assets. According to European central banks, these mechanisms can turn a stablecoin into an income-generating instrument. A platform could therefore offer indirect remuneration while circumventing the ban applicable to direct payments. The ESCB therefore requests that regulation prevent these structures.

This position is based on a competition issue in the financial system. Central bankers believe that these returns could blur the boundary between electronic money and deposits. They then fear a difference in treatment between banking actors and crypto platforms. In this logic, MiCA should clearly separate a payment token from an income-generating product.

An Expanded Ban on Today Less Covered Activities

The ESCB wants the ban to go beyond the services already regulated by MiCA. It also asks to take into account activities such as lending, borrowing, and staking when they serve to generate a return on stablecoins. This approach would broaden the scope of the rule. It targets arrangements circumventing the ban on direct remuneration.

The ECB considers that stablecoins can be integrated into multi-level structures. The token then retains its apparent payment function, while another service generates a financial return for its holder. For central banks, this organization can weaken the effect of the current rule. The MiCA revision should therefore examine these mechanisms, as it does direct remuneration.

The European debate joins an American discussion on rewards related to stablecoins. Eight American banking groups have asked senators to strengthen the restrictions provided in the Clarity Act. They believed that returns comparable to interests could compete with deposits. The text was rejected during a procedural vote, with 49 votes against 50, where other provisions also mattered.

Central Banks Also Want to Review Reserves

The MiCA revision is not only about returns. The ESCB also proposes removing the obligation requiring stablecoin issuers to keep part of the reserves in bank deposits. Today, this share reaches at least 30% for the stablecoins concerned. It rises to 60% for stablecoins considered important.

Central banks put forward another mechanism based on available liquidity. Issuers should hold precise portions of their reserves that mature within a period of one to five business days. The change would shift attention to converting assets into liquidity. The ESCB believes this approach could limit the risks of rapid withdrawals.

The project is based on the European Banking Authority’s standards and their thresholds. For important stablecoins, these rules provide for 40% of the reserves under one day and 60% under five business days. For less important stablecoins, the thresholds reach 20% and 30%. The ECB considers these levels as a starting point for liquidity requirements.

The rest will now depend on the revision of the European MiCA framework. The ESCB requests a ban covering both direct and indirect forms of remuneration, as well as a new approach to reserves. MiCA could therefore evolve on two fronts: return mechanisms and liquidity management. The ECB thus places the issue of stablecoins at the heart of discussions about the balance between crypto innovation, payments, and financial stability.