European central banks push to expand stablecoin yield ban to crypto lending and staking

The European Central Bank and national central banks in the European System of Central Banks have urged EU regulators to expand restrictions on stablecoin remuneration to include products that provide indirect returns. In a 57-page response to the European Commission’s consultation on revising the Markets in Crypto-Assets regulation (MiCA), the ESCB said crypto-asset service providers should be barred from offering lending, borrowing, staking or other arrangements that effectively yield returns for stablecoin holders.

The banks argued that allowing such indirect remuneration would erode the regulatory distinction between electronic money — intended for payments — and bank deposits, which serve as savings. They said layered structures that convert stablecoins into yield-bearing arrangements risk circumventing MiCA’s existing ban on direct remuneration and could distort competition between crypto platforms and traditional banks.

As an alternative to MiCA’s current rule requiring stablecoin issuers to hold 30% of reserves in bank deposits (rising to 60% for stablecoins designated as significant), the ESCB recommended liquidity-based rules focused on how quickly reserve assets can be converted into cash. The group said minimum deposit requirements can create concentrated, potentially unstable bank funding and expose lenders to runs if issuers withdraw large deposits to meet redemptions.

The central banks pointed to draft standards from the European Banking Authority as a starting point for new liquidity thresholds. Those drafts call for significant stablecoins to hold at least 40% of reserves maturing within one day and 60% within five working days, with lower thresholds proposed for non-significant stablecoins (20% and 30%, respectively). The ESCB asked that prohibitions on both direct and indirect remuneration be prioritised in legislative revisions to MiCA.