EU central banks want the stablecoin yield ban extended to lending and staking, and the 60% deposit rule dropped

The European Central Bank and the EU's national central banks want Europe's ban on paying interest on stablecoins widened to cover crypto lending, borrowing and staking, CoinDesk reported on Tuesday. The position is set out in the European System of Central Banks' 57-page response to the European Commission's review of the Markets in Crypto-Assets regulation, known as MiCA.

Closing the back doors to yield

MiCA already bars crypto service providers from paying interest on stablecoins. The central banks say that ban should not stop at services MiCA regulates. It should also reach activities that are currently unregulated, such as lending, borrowing and staking, because those can turn a stablecoin into something that earns a return. The document lists the kinds of "indirect remuneration" it has in mind: rewards, fee reductions, bundled services, some loyalty programs and liquidity-mining incentives in decentralized finance.

"Electronic money is intended to be used for making payments and not as a means of saving," the ESCB said, as quoted by CoinDesk. Its argument is that yield-paying stablecoins blur the line between e-money and bank deposits.

The same fight has been running in Washington. CoinDesk noted that U.S. banking groups pushed senators to tighten stablecoin reward limits in the Clarity Act, which failed a 49-50 procedural vote.

The part most headlines skipped: reserves

The more consequential proposal for issuers is about where reserves sit. Under MiCA today, at least 30% of a stablecoin's reserves must be held as deposits at banks, rising to 60% for tokens designated as significant. The central banks propose removing those minimums. Their reason is that large stablecoin deposits are unstable funding for banks: if an issuer faces a wave of redemptions, it pulls the cash and the bank takes the hit.

In place of the deposit rule, the ESCB suggests minimum floors on how much of the reserves mature within one and five working days. As a starting point it points to draft European Banking Authority standards:

The headline numbers look the same, but the test is different. The question stops being "is it at a bank?" and becomes "can it be turned into cash this week?" That could let issuers hold more of their reserves in very short-dated instruments rather than bank deposits. The document says the calibration still needs more analysis. It also says holders should keep an unconditional right to redeem, with no minimum redemption amounts.

What it means for traders

This is a consultation response, not law. The Commission and EU lawmakers decide what goes into the revised regulation. But the direction matters for anyone using a Europe-facing platform's "earn" or staking product on a stablecoin, which is exactly the kind of product the central banks want covered. It also matters for USDC issuer Circle, which is expanding its partnership with Binance, as we covered in our story on Binance's stake in Circle. Live prices are on our crypto prices page.

Sources: ESCB consultation response (ecb.europa.eu); CoinDesk. This is market information, not investment advice.