EU Pushes for Expansion of ‘Stablecoin Interest Ban’... ECB Faces Industry Backlash

[Mexico City = Shim Young-jae, Correspondent] The European Union (EU) is facing a standoff between central banks and the digital asset industry regarding stablecoin regulations. The European Central Bank (ECB), part of the European System of Central Banks (ESCB), has proposed expanding the current regulation that prohibits interest payments to stablecoin holders to include loans, borrowing, staking, and various rewards. Circle, Aave Labs, and over 50,000 EU citizens have voiced their opposition to the regulatory expansion.

According to Cryptopolitan, the EU Commission's public consultation for the MiCA (Markets in Crypto-Assets) regulatory review closed on the 30th of last month (local time), intensifying the debate surrounding the regulation of stablecoin yield payments. While the ESCB, including the ECB, has suggested maintaining the current ban on interest payments and expanding its scope, Circle and Aave Labs have opposed the regulatory expansion.

Currently, MiCA prohibits interest payments on the mere holding of stablecoins. The ESCB has proposed going a step further by including not only loans and borrowing but also indirect economic benefits such as rewards, fee discounts, and royalty benefits in the ban. The current MiCA does not explicitly prohibit such alternative compensation methods.

ECB States "Stablecoins Are Payment Means... Not Savings Instruments"

In a statement submitted to the Commission, the ESCB clarified that "electronic money is used for payments, not as a savings instrument."

The ESCB believes that if users start receiving profits simply for holding tokens, they would take on a nature similar to deposit accounts. It explained that different regulatory frameworks apply to deposits compared to stablecoins.

The ESCB also proposed regulatory measures for stablecoins issued offshore. It stated that stablecoins issued in other jurisdictions should not be recognized as separate eligible assets within the EU. Cryptopolitan cited that USDC issued in the US and euro-based USDC should not be treated separately.

However, not all of the ESCB's proposals focus on regulatory tightening.

The ESCB suggested abolishing the requirement for stablecoin issuers to hold 30-60% of reserves in bank deposits. Instead, it proposed that a certain percentage of reserves should mature within 1-5 business days.

The European Securities and Markets Authority (ESMA) has proposed a different approach.

According to Cryptopolitan, ESMA suggested regulating companies that provide services allowing users to access decentralized finance (DeFi) protocols rather than banning DeFi protocols themselves in its comments submitted on the 30th of last month.

For staking, lending, and borrowing, it proposed applying disclosure regulations proportional to the risk level instead of a blanket ban.

Circle and Aave: "Focus on Other Issues Rather Than Regulatory Expansion"

Stablecoin issuer Circle argued that the regulatory focus should shift to other issues.

According to Cryptopolitan, Circle mentioned in its comments submitted on the 1st that among the top 25 stablecoins by market capitalization, only three tokens—USDC, USDG, and EURC—are currently recognized as compliant with MiCA regulations.

However, it agreed with the ECB on reserve regulations. Circle argued that mandatory bank deposit ratio regulations could expose stablecoin reserves to greater credit risk from banks.

Aave Labs expressed that the ban on interest payments should not be expanded to loans or staking. They argued that the interest received for merely holding stablecoins and the profits generated through loans are fundamentally different.

They explained that loan profits are paid by borrowers who provide collateral, and the lender bears the risk, which differs from rewards paid by issuers or platforms simply for holding coins.

Aave Labs contended that expanding regulations to include loans and staking could create a relatively favorable environment for dollar stablecoins in the on-chain market, potentially causing compliant stablecoins under MiCA to lose major use cases.

Stani Kulechov, founder of Aave, also expressed his disappointment with the ECB and the European Banking Authority (EBA) on X (formerly Twitter).

Over 50,000 Opposition Voices... Petitions Exceed 120,000 Signatures

Not only companies but also EU citizens participated in the regulatory discussions.

According to Cryptopolitan, the digital asset policy group Stand With Crypto EU reported that over 50,000 individuals across the EU sent emails to the Commission requesting that rewards, cashback, and fee discounts be allowed for compliant stablecoins.

A separate petition calling for the complete abolition of the ban on yield payments, provided that stablecoins are backed by safe interest-paying assets, has garnered over 126,600 signatures.

Stand With Crypto EU explained that the scale of email submissions this time is more than six times the 8,221 submissions received during the ECB's consultation on the digital euro.

This organization includes partners such as Börse Stuttgart Digital, 50 Partners, IOTA, and Morpho.

Harry Pierce Gould, head of Stand With Crypto EU, characterized this debate as a matter of European competitiveness. He stated that Europe "does not need to follow the US but must compete with it."

Cryptopolitan explained that under the US's GENIUS Act last year, stablecoin issuers cannot directly pay interest to holders, but exchanges can still offer rewards.

Opponents of regulatory expansion argue that if the EU introduces stricter regulations, domestic platforms could lose business to other markets like the US.

With the public consultation concluded, the EU Commission will review the conflicting opinions submitted by the ESCB, ESMA, stablecoin and DeFi companies, and civil society organizations to determine the direction of MiCA amendments.

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