ECB Seeks to Close Stablecoin Yield Loopholes

Central banks argue that allowing stablecoins to function as yield-bearing assets blurs the line between digital tokens and traditional bank deposits. By funneling tokens into staking or borrowing protocols, crypto platforms can effectively offer economic returns that mimic interest, a practice the ESCB maintains is incompatible with the primary purpose of electronic money. The proposed expansion would mandate that any return—direct or indirect—falls under the existing prohibition.

Beyond remuneration, the ESCB is challenging current reserve requirements. Under existing MiCA rules, issuers must hold 30% to 60% of their reserves as deposits with credit institutions. The central banks warn that these requirements create systemic risks, as massive, sudden withdrawals by a stablecoin issuer during a redemption crisis could destabilize the banking sector. Instead, they propose a liquidity-based model, requiring issuers to hold assets maturing within one to five days, ensuring they can meet redemption demands without triggering bank liquidity shocks.