The European Banking Authority (EBA), the EU’s banking regulator, has put forth new draft guidelines aimed at imposing minimum liquidity requirements on stablecoin issuers.
The proposed rules would mandate that stablecoins—cryptocurrencies designed to maintain a steady value—be fully backed by liquid assets and redeemable at face value, even during times of market stress. Stablecoins would be subject to liquidity stress tests to evaluate their ability to meet sudden spikes in redemption demand.
The move comes as part of a broader EU regulatory
The move comes as part of a broader EU regulatory push around crypto assets aimed at minimizing risks. EU Regulators want to ensure stablecoins have sufficient liquidity buffers, much like banks must hold cash reserves, to avoid destabilizing bank-run scenarios.
Additionally, the proposed requirements would apply to any stablecoin issuer, not just banks. The new regulations will “avoid unfair competition in terms of capital and liquidity requirements,” per the EBA.
After finalization, the new stablecoin liquidity guidelines will take effect in the EU starting in early 2024. The draft rules are currently in a three-month public consultation period, with a public hearing scheduled for January 30, 2024.
Furthermore, regulators will be empowered to ratchet up liquidity demands on a case-by-case basis, depending on stress test outcomes. The EBA said ensuring stablecoins are redeemable even in adverse conditions will help maintain public confidence in these coins.