Here is a number that should make anyone watching digital cash sit up. Among the thirty largest stablecoins in circulation, only three currently line up with Europe’s Markets in Crypto-Assets rulebook. That is not a trivia fact. It is a policy problem, a market design problem, and, if you issue tokens for a living, a business problem. Circle has now asked EU lawmakers to reopen parts of that rulebook, and the argument is sharper than the usual industry plea for “clarity.”
Why Circle Wants MiCA Rewritten Now
I have followed stablecoin debates long enough to recognize a familiar pattern. First comes the law. Then comes the surprise that the law captures a smaller slice of real activity than anyone advertised. Then comes the lobbying. Circle’s October policy submission sits in that third phase, but it is more specific than most. The company is not asking Europe to abandon consumer protection. It is asking Europe to stop designing rules that, in practice, leave the most used tokens outside the tent.
Patrick Hansen, Circle’s director of EU strategy and policy, put the compliance gap in plain language. Only three of the top thirty names meet the current standard. Those three are USDC, USDG and EURC. In a companion note, the same trio appears when the comparison is narrowed to the top twenty-five tokens by market value. Either way, the picture is the same. Europe has licensed a batch of e-money tokens. The tokens people actually move around the world, in many cases, still sit elsewhere.
Only 3 of the top 30 are MiCA-compliant today.
– Circle EU policy director
That line is doing a lot of work. It tells regulators that authorization volume is not the same as market relevance. It also tells issuers that a passport in Europe does not automatically put you in the same league as the tokens already embedded in trading, payments and treasury flows. In my view, that gap is the real story. Licensing without liquidity is just paperwork with a logo.
The Compliance Gap Behind The Headlines
MiCA created a category for electronic money tokens. Issuers need authorization. Reserves need to be held in a defined way. Redemption has to work. Disclosure has to be more than a blog post. On paper, that sounds tidy. In practice, global usage does not wait for a regional license. Traders, payment firms and corporate treasurers already treat a handful of dollar tokens as infrastructure. If those tokens cannot be issued or distributed under the European model without friction, users will not suddenly become more European. They will simply stay offshore.
Circle’s own European book shows what compliance can look like when the product is built inside the box. EURC is issued through a licensed French electronic money institution. Reserves sit apart from corporate cash. Monthly third-party attestations are part of the routine. Eligible mint customers can redeem one for one into euros. Circulation crossed the four hundred million euro mark after a year of faster growth, helped by exchanges, payment firms and institutional platforms. That is not a theoretical case study. It is a working example of a regulated euro token finding actual use in payments, FX, treasury and settlement, not only in crypto trading.
Still, one successful euro token does not close the gap Hansen described. The market remains dollar-heavy. The largest names were designed for global rails, not for a single bloc’s deposit ratios. If the rulebook treats that design as a defect rather than a fact, Europe risks supervising the tokens people do not use and watching the tokens people do use from the sidelines.
Cross-Border Issuance Is The First Fight
Circle wants MiCA to keep a model in which a licensed European entity can issue a token alongside an affiliated issuer in another jurisdiction. That sounds technical. It is not. It is the difference between bringing a global coin under a European roof and forcing the European roof to invent a smaller, local twin that nobody asks for.
Restrict the affiliate model and you do not automatically get more European supervision. You may get the opposite. Users who already hold the global token will keep using the global token. They will just obtain it from venues that never sat through an EU authorization process. I have found that markets are stubborn that way. Liquidity follows habit. Habit does not follow a recital in a regulation.
Circle pointed back to an older European Commission impact assessment that already flagged this risk. Cut foreign tokens out of the formal channel and people still buy them. They just buy them without the protections the law was written to deliver. That is a poor trade. You lose visibility and you do not gain safety.
The company also asked for safeguards that would let reserves be rebalanced between European issuance and global issuance. That request will make some supervisors nervous. Concentration, ring-fencing and “where is the cash, really?” are fair questions. But a rigid split that cannot move liquidity when redemptions spike is not prudence. It is a self-inflicted squeeze.
- Keep affiliated issuance so a European license can sit next to an overseas book
- Allow reserve rebalancing with documented safeguards
- Bring widely used tokens under supervision instead of pushing users offshore
- Treat access to existing global coins as part of the European market, not a side issue
Perhaps the most interesting aspect is how this argument blends self-interest and public interest. Circle benefits if the current structure survives. Europe also benefits if activity stays inside supervised entities rather than migrating to platforms that treat the continent as an export market only. Those two facts can be true at the same time. Policymaking gets messy when people pretend they cannot.
Reserve Rules That Prefer Banks Over Liquidity
The second request is about what sits behind the token. Current e-money token rules lean hard on commercial bank deposits. At least thirty percent of backing assets must sit in those deposits. For issuers labelled significant, the share jumps to sixty percent. Circle wants that percentage logic replaced by a test based on how quickly reserve assets can meet redemptions.
On the surface, deposits sound safe. Cash at a bank. What could be simpler? Look closer and you see credit risk, counterparty risk and a quiet assumption that the banking system is always the best parking lot for money that must be instantly redeemable. I am not convinced that assumption deserves the force of a hard floor. A short-dated government bill can be more liquid, and less bank-dependent, than a deposit at an institution that is itself levered and interconnected.
European central banks, in their own consultation comments, made a related point. They favored dropping the minimum deposit percentages while keeping liquidity safeguards. Proposed liquidity windows covering one to five days would still force issuers to prove they can pay out under stress. That is the right instinct. Judge the reserve by whether it can meet the promise printed on the token, not by whether a fixed slice happens to sit on a commercial bank’s balance sheet.
Circle also challenged two concentration limits that arrived through technical standards. One caps exposure to a single sovereign issuer at thirty-five percent. The other ties deposits at each banking counterparty to one and a half percent of that bank’s total assets. The sovereign cap bites dollar-token issuers that want deep, government-backed liquidity. The banking cap can force a large issuer into a thicket of banking relationships just to stay inside the ratio. Operational complexity is not a virtue. It is a cost that eventually shows up in spreads, access and operational risk.
| Rule | Current Approach | Circle Preference |
| Bank deposits | 30% floor, 60% if significant | Liquidity-based test |
| Sovereign exposure | 35% single-issuer ceiling | Room for liquid government paper |
| Bank counterparties | 1.5% of each bank’s assets | Fewer forced relationships |
| Stress design | Structure-heavy | Redemption-ready reserves |
Does that mean issuers should be free to stuff reserves with anything that yields a bit more? No. A liquidity standard still has to be strict. Haircuts, maturity limits, daily redeemability and independent attestation still matter. The point is narrower. A percentage that privileges bank deposits can increase the very risks supervisors say they want to contain.
What A Liquidity-First Reserve Standard Would Look Like
Imagine two issuers. One parks sixty percent of reserves in deposits spread across a crowd of banks because the law says so. The other holds a larger share in short government paper and overnight instruments that can be sold or matured inside a defined window. Which book is safer on a Friday afternoon when redemptions jump? The answer is not automatic. It depends on market depth, custody, operational playbooks and whether the banks themselves are having a normal day.
That is why a one-to-five-day liquidity ladder is more honest than a deposit quota. It forces the issuer to map cash against likely outflow paths. It also gives supervisors something they can test. Can you raise this amount by tomorrow? By day three? By day five? Those questions beat a static pie chart.
A practical reserve lens: Instant cash and same-day instruments One-to-five-day high-quality paper Clear redemption waterfall Independent monthly checks Separation from operating funds
Circle already runs a version of that discipline on the euro side. Segregated reserves. Attestations. Direct redemption for eligible customers. If the review of MiCA is serious, those operational habits should count for more than the accident of where the cash is booked.
A Door For Foreign-Regulated Issuers
The longer-term request is recognition. Circle wants a path in which a foreign-regulated issuer stays primarily supervised at home and reaches European users through a locally licensed institution. The Commission would assess the foreign framework. The European Banking Authority would recognize the individual issuer. Reciprocity would, in theory, let European tokens travel the other way.
That design has an American cousin. Under the United States payment stablecoin statute often called the GENIUS Act, a foreign issuer seeking an exception must sit under a regime the Treasury finds comparable. It must register with the national banking supervisor. It must hold reserves at a United States financial institution sufficient for American customer liquidity, unless a reciprocal deal says otherwise. It must accept enforcement jurisdiction and live with reporting, supervision and examination.
Circle is not shy about citing that model. Fair enough. Comparability plus local distribution plus residual enforcement is a grown-up way to handle a market that is already cross-border. The alternative is a patchwork in which every region pretends the token begins and ends at its border. Tokens do not work that way. Wallets do not work that way. Treasury desks do not work that way.
- Home supervisor remains the primary watchdog
- The Commission judges whether the foreign rulebook is close enough
- The European authority recognizes the specific issuer
- A local licensed firm handles European distribution
- Reciprocity is on the table for European tokens going abroad
Will this be easy to negotiate? Not a chance. Comparability reviews become political. Home-host fights are as old as banking. Still, refusing to build the door does not keep the product out. It only keeps the product informal.
What This Means For Users, Not Just Issuers
It is easy to treat this as a Circle story. It is also a user story. If you hold a dollar token for payments or trading, you care whether redemption works in a crunch. You care whether reserves are real. You care whether the issuer can be reached by a supervisor who is not a press release. You may not care which affiliate sits on which org chart. You will care if the token you already use becomes awkward to obtain inside Europe while a thinner local substitute is pushed as the “safe” option.
Euro tokens have a genuine opening here. A well-run, fully reserved, easily redeemable euro coin can win share in invoicing, settlement and intra-European payments. That is not slogan material. Corporates like predictability. Payment firms like rails that do not surprise compliance teams. The catch is scale. Scale still lives with the dollar names. Policy that ignores that fact will produce a polite European garden and a wild global field next door.
I’ve found that people underestimate how quickly users route around friction. If an exchange pair disappears, another venue appears. If minting is limited, secondary markets pick up the slack, often with worse pricing and weaker protections. A rule that looks strict on a slide deck can become leaky in the market. That is not an argument against rules. It is an argument for rules that attach to the activity you actually want to supervise.
The Side Debate On Perpetual Futures
While Circle was talking reserves, another policy shop used the same review window to talk derivatives. The argument, in short, is that perpetual futures should be judged by economic substance, not by the fact that a blockchain records the trade. If the product is a derivative, treat it as a derivative under the existing markets framework. Do not drag over restrictions built for bilateral contracts for difference and drop them onto a transparent central limit order book. And when reporting is the issue, look first at what the public chain already shows.
That fight is adjacent, not identical. Still, it belongs in the same conversation about technology-neutral law. If two products do the same economic job, the wrapper should not decide the entire legal fate. Stablecoins and perpetuals are different instruments. The instinct underneath both submissions is similar. Write the rule for the risk, not for the branding.
Where The Politics Get Awkward
Europe has spent years building MiCA as a flagship. Reopening pieces of it so soon will look, to some officials, like a retreat. It does not have to. A review that tightens liquidity tests while loosening unhelpful deposit floors can be sold as modernization. A recognition path for foreign issuers can be sold as influence: if your rulebook becomes the reference point others must match, you export standards instead of importing chaos.
The hard part is banking politics. Deposit floors channel large cash pools toward commercial banks. Concentration caps then tell issuers they cannot lean too hard on any one of those banks. The combination looks balanced until a large issuer needs both depth and diversification at once. Then it looks like a maze. Supervisors will have to decide whether the maze is a feature.
There is also a currency angle nobody should pretend is absent. Dollar tokens dominate. Euro tokens are growing from a smaller base. A framework that makes dollar issuance clumsy inside Europe may be intended to protect monetary sovereignty. It may also just relocate dollar activity to venues Europe does not see. Sovereignty without visibility is a thin prize.
Excluding the tokens people already use does not make those tokens disappear. It only makes them harder to supervise.
How Issuers Should Read The Moment
If you issue or distribute stablecoins, the next year is not about waiting for a perfect statute. It is about building the operating proof that a liquidity-first reserve model works. Attestations. Segregation. Redeemability that is more than a white paper sentence. Banking relationships that exist because they are useful, not because a ratio demanded a twelfth account.
If you are building a euro token, this is your window. Distribution, not slogans, will decide whether EURC-style products remain a niche or become a habit. Payments, FX and treasury use cases are the right battleground. Trading pairs help, but they are not the whole product.
If you are a policymaker, ask a blunt question. Do we want the largest tokens inside a supervised perimeter with workable reserves, or do we want a clean local registry and a messy global market we cannot see? Circle has picked its answer. Europe still has to pick its own.
A Realistic Path Through The Review
A workable compromise is not mysterious. Keep authorization. Keep redemption rights. Keep public disclosure and independent checks. Drop the idea that commercial bank deposits are inherently the safest bucket. Replace fixed percentages with a tested liquidity ladder. Allow affiliate issuance with hard rules on reserve location, audit rights and crisis playbooks. Build a recognition track that is slow, demanding and real, rather than a slogan about openness.
None of that requires pretending stablecoins are harmless. They concentrate operational risk. They can transmit stress quickly. They sit next to payments, which means a failure is not a collector’s problem. The response to that seriousness should be better plumbing, not a rule that accidentally congratulates the tokens that stayed small enough to fit.
Will every large issuer rush to comply if the door opens wider? Some will. Some will not. That is fine. The test of a framework is not universal membership. The test is whether the tokens that matter can be brought under rules that still let them function. Right now, by Circle’s count, that test is not being met.
The Uncomfortable Conclusion
Three out of thirty is not a rounding error. It is a signal that the map and the territory have drifted apart. Circle has a commercial reason to close that gap. Europe has a supervisory reason to close it too. Those reasons overlap more than either side may want to admit.
So the review should not be framed as a favor to one issuer. It should be framed as a choice about whether digital cash used in Europe will be supervised in Europe. Cross-border issuance, reserve liquidity and foreign recognition are not side quests. They are the core of that choice. Get them wrong and the licensed market stays tidy, small and slightly beside the point. Get them right and the rulebook finally attaches to the tokens people already treat as money.
That is the conversation worth having now, before habit hardens around the tokens that never bothered to come inside.
