Key takeaways
- MiCA, the EU's crypto-asset regulation, sets reserve rules for two types of stablecoin: e-money tokens (EMTs), which reference one official currency, and asset-referenced tokens (ARTs), which reference other assets or baskets.
- EMT issuers must deposit at least 30% of the funds received in separate accounts at credit institutions, rising to 60% for significant EMTs, and invest the rest in secure, low-risk assets in the same currency.
- ART issuers must hold a reserve of assets, segregated from their own assets, that covers the tokens in circulation and the risks of the referenced assets.
- Both require daily knowledge of tokens outstanding and reserves held, by currency.
Two types of stablecoin under MiCA
MiCA, Regulation (EU) 2023/1114, divides stablecoins into two categories. An e-money token references a single official currency, such as a euro or dollar stablecoin. It may be issued only by a credit institution or an electronic money institution, and is treated as electronic money. An asset-referenced token references anything else, such as several currencies, commodities or a basket, and requires authorisation as an ART issuer.
Issuers of significant tokens, whether EMTs or ARTs, face additional requirements, including higher reserve and liquidity standards, and supervision by the European Banking Authority for significant ARTs. A token can become significant as it grows, so issuers should monitor the thresholds and plan for the change in advance.
The reserve rules differ because the risks differ. An EMT holder is owed a fixed amount of one currency; an ART holder is owed a claim linked to a basket whose value moves. Our guide to what MiCA is covers the wider regulation.
Reserve rules for e-money tokens
Funds received in exchange for EMTs must be safeguarded under the E-Money Directive rules, with additional MiCA requirements. At least 30% of the funds received must be deposited in separate accounts at credit institutions. For EMTs classed as significant, because of their size or use, the minimum rises to 60%. The remainder must be invested in secure, low-risk assets that qualify as highly liquid financial instruments with minimal market, credit and concentration risk, denominated in the same currency as the token. Our guide to EMT reserves for e-money institutions shows how the two regimes fit together.
Holders have a right to redeem at par at any time, so the reserve must be managed for liquidity as well as safety.
| Token type | Minimum held as deposits at credit institutions | Remainder |
|---|---|---|
| E-money token | 30% of funds received | Secure, low-risk, highly liquid assets in the same currency |
| Significant e-money token | 60% of funds received | Secure, low-risk, highly liquid assets in the same currency |
| Asset-referenced token | Set by MiCA and EBA technical standards for liquidity | Reserve of assets segregated and composed to cover referenced assets and risks |
Worked example: an EMT issuer
A euro e-money token has €200 million outstanding and is not significant. The issuer holds €64 million, 32%, in separate accounts at two credit institutions, and €136 million in short-dated euro government bonds. The deposit share is above the 30% minimum and total reserves equal tokens outstanding.
A week of strong redemptions reduces outstanding tokens to €180 million, paid from deposits. Deposits fall to €44 million, which is 24% of €180 million, below the minimum. The issuer must restore the deposit share, by selling bonds or adding funds, and should set its own buffer above 30% so normal redemption weeks do not breach the floor.
Evidence and reconciliation
Supervisors expect issuers to know, every day, tokens outstanding by network, reserves held by account and asset, the deposit share and the composition limits. That requires the same daily reconciliation used by US issuers, adapted to MiCA's categories: on-chain supply against the issuance ledger, reserve records against bank and custody statements, and coverage and composition tests. Our guide to stablecoin reserve reconciliation sets out the process.
Safeheld runs that reconciliation daily and applies MiCA composition tests alongside GENIUS Act and NYDFS requirements for issuers active in several jurisdictions. See GENIUS Act vs MiCA.
Frequently asked questions
What is the MiCA reserve requirement for e-money tokens?
At least 30% of funds received held in separate accounts at credit institutions, 60% for significant EMTs, with the rest in secure, low-risk assets in the same currency.
Who can issue e-money tokens under MiCA?
Credit institutions and electronic money institutions.
What is an asset-referenced token?
A crypto-asset that references something other than a single official currency, such as a basket of currencies or commodities.
Do MiCA tokens have a redemption right?
Yes. EMT holders can redeem at par at any time.
References
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.