Europe Faces Pressure to Allow Stablecoin Rewards Ahead of MiCA Review

Pressure is building ahead of the European Union’s review of its Markets in Crypto-Assets regulation, or MiCA, to loosen restrictions on stablecoin rewards. More than 50,000 people have taken part in a related public consultation, while the European Central Bank camp has pushed for tighter rules instead, heightening tensions over stablecoin policy.

Cointelegraph reported on October 1 that crypto advocacy group Stand With Crypto EU said more than 50,000 people participated in a European Commission public consultation on the MiCA review. A separate petition calling for looser stablecoin rules drew more than 126,000 signatures.

At the heart of the debate is the scope of economic benefits that can be offered to stablecoin holders. Current MiCA rules bar stablecoin issuers and crypto-asset service providers from paying interest to holders.

Stand With Crypto EU argues the restrictions put stablecoins at a disadvantage versus bank deposits and e-money products. It says MiCA should permit not only interest payments, but also cashback, loyalty points and fee discounts to help boost the competitiveness of euro-denominated stablecoins.

Harry Pearce Gould, secretary-general of Stand With Crypto EU, said the MiCA review should allow compliant stablecoins to offer rewards to holders. The U.S. is promoting stablecoins as a payments layer for tokenized finance, he added. Europe does not need to take the same path, but euro stablecoins need a rewards structure to compete with dollar-based stablecoins.

On the other side, some officials are calling for tougher regulation. In comments submitted on September 22 for the MiCA review, the European System of Central Banks proposed expanding the interest ban to cover lending, borrowing, staking and other yield-generating activities.

The ESCB also said reserve rules should be revised. Rather than requiring stablecoin issuers to hold part of their reserves as bank deposits, it argued that liquidity standards should apply. If large-scale redemptions occur, sudden deposit withdrawals by issuers could spill over into liquidity strains in the banking sector.

Christine Lagarde, president of the European Central Bank, has also warned about the impact of broader stablecoin adoption on banks. In May, she said a shift of bank deposits into stablecoins could weaken banks’ lending function and the transmission of monetary policy. She argued that tokenized finance infrastructure centered on central bank money should take priority.

As the MiCA review gathers pace, Europe’s stablecoin policy is again being tested between the goals of stronger competitiveness and financial stability.