Circle, Aave and 50,000 Europeans push back as ECB seeks to extend yield ban to DeFi

The impending clash between those who want the restriction tightened and loosened was set up during the European Commission’s MiCA review public comment window, which closed on September 30.

What European central banks want in MiCA consultation

The European System of Central Banks (ESCB), a body that includes the European Central Bank (ECB) wrote in response to the European Commission’s MiCA’s consultation that it supports keeping the prohibition of paying interests on stablecoins in the rulebook.

The ESCB went further to push for regulators to expand the interest payment ban to activities like lending, borrowing and staking. The body also asked to add prohibitions of other forms of perks such as rewards, fee reductions and loyalty benefits to the rulebook.

In its current state, MiCA does not expressly ban these alternatives.

The ESCB wrote that “Electronic money is intended to be used for making payments and not as a means of saving” in explaining the position it took. Hence, when people are being paid for simply holding a token, it is now starting to align with its definition of a deposit account, which is governed by different rules.

They also asked that stablecoins issued in other jurisdictions should not be considered viable or acceptable in the EU. For example, a US-issued USDC token should not be treated separately to a euro-issued USDC.

However, not every suggestion from the body pushed for more restrictive measures. For example, the ESCB asked to scrap a rule that requires stablecoin issuers to hold between 30% and 60% of reserves in bank deposits.

In its place, the body representing the European central banks, proposed an alternative system where a set share of reserves mature within one to five working days.

The central banks are not the only regulators in the file. European Securities and Markets Authority (ESMA), in its September 30 response, proposed a new regulated service for firms that give users access to DeFi protocols and proportionate disclosure rules for staking, lending and borrowing rather than an outright ban.

Industry stakeholders disagree with Europe’s central banks

In its October 1 response to the regulator, Circle, argued that the regulator should be focusing on the perimeter of a framework that clears only three of the 25 largest stablecoins by market cap (USDC, USDG and EURC) as MiCA-compliant regulated today, not a shortage of licensed issuers.

However, Circle sided with the ECB’s position on the issue of reserves, writing that the mandatory deposit floor requirement raises exposure to banking-sector credit risk.

The DeFi giant Aave Labs, which operates Push, a MiCA-authorized service provider subsidiary supervised by the Central Bank of Ireland, asked the Commission not to extend the interest ban to lending or staking.

Aave Labs made its argument on the distinction it pointed out, between lending return and simply paying people to hold a coin. On the one hand, lending returns are paid by borrowers who post collateral and are taken on by a lender who bears the risk, much like lending euros or bonds, while the current ban only stops issuers and platforms from paying people to hold a coin.

Expanding the ban beyond its current scope will hand dollar stablecoins the advantage in on-chain markets, while MiCA stablecoins lose a key use case in that sector.

More than 50,000 respondents don’t support expanding MiCA scope

The loudest pushback came from outside the companies. The Stand With Crypto EU advocacy group said more than 50,000 people across the bloc asked the Commission via emails to let regulated stablecoins offer rewards, cashback and lower fees.

One petition gathered over 126,600 signatures calling for the yield ban to be dropped entirely as long as the coin is backed by safe, interest-bearing assets. The group, whose partners include Boerse Stuttgart Digital, 50 Partners, IOTA and Morpho, said the email volume ran more than six times the 8,221 responses to the ECB’s digital euro consultation.

Harry Pearce Gould, the group’s general manager, framed it as a competitiveness fight, saying Europe “doesn’t need to copy” the US but “does need to compete with it.” Under the GENIUS Act of 2025, US issuers cannot pay interest directly, but exchanges there can still offer rewards.

Supporters of the push not to expand the rules to new areas argue that EU platforms will lose business if regulators move forward with the restrictive suggestions.

The Commission now has to reconcile those competing submissions as it decides what a revised MiCA looks like.