EBA Proposes Draft Liquidity Rules for Stablecoin Issuers

By: Eliza Bennet

The European Banking Authority (EBA), the EU's banking watchdog, has proposed new guidelines for stablecoin initiators setting minimum capital and liquidity requirements. The draft guidelines are presently under public consultancy until Feb. 8, 2024, and if sanctioned, will be operational from June 2024.

These proposed liquidity guidelines guarantee that the stablecoin can be instantly redeemed even during unstable market scenarios. Issuers of any stablecoin should grant that the stablecoin, supported by currency, is fully redeemable to investors. The regulators believe that this move will highlight any potential lack of liquidity, thereby ensuring only fully-backed stablecoins with adequate liquidity buffers are approved.

After the implementation of these guidelines, the competent authority will have the ability to intensify the liquidity prerequisites of the relevant issuer based on the liquidity stress test's outcome. The measures are targeted at stablecoin proponents, including non-banking entities, necessitating them to adhere to the same principles, thus preventing any unfair capital or liquidity gains over banks.