EU bank regulator wants crypto lending and DeFi access regulated, and may loosen stablecoin deposit rules

The European Banking Authority on Thursday asked the European Commission to bring crypto lending under the EU's Markets in Crypto-Assets rules, known as MiCA, including when exchanges and brokers give customers access to decentralized finance (DeFi) lending protocols. The recommendation is part of the EBA's formal response to the Commission's review of MiCA. Cointelegraph led with the lending proposal.

The lending item got the headlines. The full 41-page response contains three details that matter more to anyone trading or holding stablecoins.

1. Two stablecoins dominate lending, and one is not authorized in the EU

The EBA says its own analysis found that two stablecoins dominate crypto borrowing and lending, roughly in line with their market size. One is issued by a licensed EU e-money institution. The other meets MiCA's definition of an e-money token but cannot be offered to the public or listed for trading in the EU, because its issuer chose not to seek authorization. The EBA did not name either coin.

That is the regulatory gap the proposal is aimed at. MiCA bans stablecoin issuers and crypto service providers from paying interest on stablecoins. Lending a stablecoin out produces yield anyway, which the EBA calls a regulatory arbitrage risk. Among the options it lists is a ban on EU crypto firms intermediating or giving access to lending in stablecoins that lack MiCA authorization.

2. The proposed toolkit for lending

The EBA asks the Commission to run a cost-benefit analysis first, so none of this is law yet. The measures it puts on the table:

• Suitability tests, since crypto borrowing and lending "may be appropriate only for certain types of user".
• Leverage caps for some or all users.
• Detailed disclosures, plus extra warnings when a firm routes customers into DeFi, stating that truly decentralized protocols are unregulated.
• A certification regime for DeFi lending protocols, covering at least resistance to cyberattack.

The EBA notes that crypto lending is already intermediated in at least 16 member states. It also says easy-access interfaces, and AI tools that write the code to reach DeFi, are blurring the line between regulated and unregulated finance.

3. The reserve rule could get looser, not tighter

This is the part a quick read misses. MiCA requires e-money token issuers to hold at least 30% of reserves as bank deposits, and 60% for significant tokens. The EBA calls the current rules broadly appropriate, but says the deposit minimum ties issuers and banks together in both directions. A rapid pull of issuer deposits could stress a bank, and a bank failure could trap an issuer's reserves. It suggests the Commission study whether the minimum could be cut, possibly replaced with daily and weekly liquidity buckets, as long as the other reserve assets are high quality.

Compare Washington. The Federal Reserve's GENIUS Act proposal on Thursday lists a menu of permitted reserves, from insured bank deposits to Treasuries with 93 days or less to maturity, as we reported. Europe wrote a fixed bank-deposit minimum into law, and its own bank regulator is now asking whether that went too far.

The EBA also flags "significant to very significant" risks from third-country multi-issuer schemes, in which one dollar stablecoin is issued both inside and outside the EU. It says two EU e-money institutions currently take part in such schemes, both for dollar tokens. The risk is that EU holders redeem against the EU issuer while reserves sit elsewhere.

Who it hits

• Traders using EU platforms for stablecoin yield. If the access ban on unauthorized stablecoins is adopted, the biggest lending market for those coins could close to them through licensed EU firms.
• EU banks. Lower deposit minimums would reduce a funding source the EBA itself calls "more sensitive" than retail deposits.
• Tokenized deposits, the bank-issued alternative to stablecoins. EBA survey data show 26% of EU banks expect to deploy them within three years, up from 16% in 2024. Seven UK banks, including Barclays, HSBC and Lloyds, completed live interbank tokenized-deposit payments, announced Thursday, CoinDesk reported.

Earlier coverage: Europe's central banks and the stablecoin yield ban. Prices on our crypto board.

Sources: European Banking Authority, Cointelegraph, CoinDesk. This is market information, not investment advice.