Circle CEO Concerned About MiCA: Introduces Credit Risk, No Banks Willing to Cooperate on Reserves

DL News reported that Jeremy Allaire, CEO of stablecoin issuer Circle, stated in a recent press conference that the new EU Crypto Assets Market Law (MiCA) introduces bank credit and counterparty risks. Additionally, the requirements regarding fund reserves are making it difficult for crypto companies to operate.

MiCA Introduces Banking Risks

Jeremy Allaire pointed out that the EU's MiCA regulation introduces banking risks, with concerns surrounding the reserve requirements.

Circle's Head of EU Strategy and Policy, Patrick Hansen, further revealed:

MiCA introduces credit and counterparty risks, which even regulatory bodies like the European Banking Authority (EBA) acknowledge.

Specifically, Counterparty Risk is a common risk in the financial industry, stemming from potential default or failure to pay risks, which may arise from poor financial management, economic downturns, or mismanagement; regular monitoring of counterparties' financial and credit conditions is necessary, with measures to reduce exposure or renegotiate terms taken when risk alerts arise.

Allaire stated that companies issuing stablecoins pegged to fiat currencies under MiCA are required to hold 30% of reserves in cash across multiple EU bank accounts, while 60% reserves are required for other digital currencies:

The reserve requirements under MiCA will undergo review next year and are expected to be fully compliant with MiCA standards within two to three years.

Hansen also mentioned the potential introduction of the "MiCA II" regulation:

Experts speculate that a "MiCA II" regulation may be introduced in the future to regulate current decentralized financial applications and update existing MiCA regulations.

Are Banks Willing to Collaborate with Crypto Companies?

Furthermore, following the series of crises faced by crypto banks last year, Allaire admitted that crypto companies struggle to find banking partners:

For companies in our industry, establishing stable banking relationships is indeed very challenging, especially since many European banks typically have numerous restrictions when it comes to working with crypto companies.

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However, he also mentioned that Circle relies on several undisclosed major global banks to provide support for USDC in each major region.

Allaire emphasized the advantages of providing crypto services through banks under the MiCA framework, noting the local banks' interest in certain business aspects:

European banks themselves are very interested in issuing stablecoins and developing innovative payment channels, hoping to enter this industry in a more comprehensive manner.

Circle's Regulatory Leadership

As the first compliant stablecoin issuer under MiCA by setting up in France, Circle legally segregates the issuance and redemption of USDC across jurisdictions on both sides of the Atlantic to ensure compliance:

USDC is now issued in two major jurisdictions, each with different audits, regulations, and requirements.

Will Circle becoming the first MiCA-compliant stablecoin issuer challenge Tether's dominant position?

Last month, Tether, the issuer of USDT that currently dominates the stablecoin market, also expressed concerns about MiCA's implementation:

These requirements not only make the work of stablecoin issuers more complex but also make EU-approved stablecoins more fragile and operationally riskier.

MiCA set to take effect at the end of the month, Tether CEO worries about stablecoin operational risks

Meanwhile, Binance also acknowledged the scarcity of regulated stablecoins in the market, with limited liquidity that may not be sufficient to meet industry demands:

However, it is expected that more regulated stablecoins will emerge in the market, gradually shifting towards regulated stablecoins over time to ensure the realization of MiCA's goals.