Stablecoins are often presented as the least risky part of the cryptocurrency market. In fact, their value tries to remain anchored to a traditional currency, generally the dollar or the euro. Price stability, however, does not automatically make the return promised by the platforms certain.
On September 24, the European Banking Authority asked to evaluate new rules for crypto-asset lending and financing. The intervention also concerns intermediaries who allow customers to access decentralized finance protocols, the so-called DeFi.
The EBA has not introduced a new ban and the changes have not yet been approved. However, he identified an important gap: the European MiCA regulation regulates issuers, platforms and numerous crypto-asset services, but does not directly cover crypto-lending. Precisely in this area, high interests are often offered to those who make their tokens available.
Where does the interest on stablecoins come from?
A stablecoin is a cryptocurrency designed to hold a stable value, for example a dollar. This feature concerns the price of the token, not the safety of the intermediary nor the return of capital.
Simply holding a stablecoin does not necessarily produce interest. The return arises when the owner delivers the tokens to a platform, which can lend them to other operators, use them in financial strategies or transfer them to a decentralized protocol.
The customer is therefore not making a traditional bank deposit. It is taking risks related to the borrower, the collateral, the platform and the technology used.
| Solution | Where does the performance come from? | Main risk | Applicable protection |
|---|---|---|---|
| Bank deposit | Interest recognized by the bank | Insolvency of the institution | Guarantee of deposits within the established limits |
| Stablecoin held | No automatic returns | Anchor loss and issuer risk | MiCA rules if token and issuer are compliant |
| Crypto lending | Tokens lent to third parties | Insolvency, insufficient collateral and blocking of withdrawals | Lending not regulated directly by MiCA |
| DeFi Lending | Interest generated by a smart contract | Protocol errors, attacks and liquidations | No protection equivalent to banking protection |
The word “stable” can cause a misunderstanding. The token can remain close to the value of a dollar, while the product promising the return can suffer losses, suspend redemptions or fail.
The hole in MiCA’s protections
ESMA has clarified that suppliers authorized as CASPs (Crypto-Asset Service Providers), i.e. operators authorized to offer services on crypto-assets, can also offer lending, which allows customers to lend their tokens in exchange for a return. This activity remains, however, outside the specific perimeter of MiCA. Operators must, however, act correctly, provide clear and non-misleading information and obtain the customer’s explicit consent before using their crypto-assets.
The decisive step concerns custody. According to ESMA’s official response on crypto-lending services, the safeguards provided by MiCA for stored crypto-assets do not apply to tokens used in lending programmes.
This means that choosing an authorized platform does not automatically transform lending into a guaranteed product. The MiCA authorization may be for custody, exchange or transfer, while the interest matching program may remain an unregulated service.
Even any revenues produced by the loan, ESMA specifies, should be paid to the customer who bears the risk, net of a commission proportionate to the costs incurred by the intermediary.
The new protections proposed by the EBA
The European Commission is examining whether the MiCA regulation should be amended or completed. In the contribution sent to Brussels, the EBA proposes an analysis of the costs and benefits of including crypto-lending among the regulated services.
| Proposal | Problem addressed | Possible consequence |
|---|---|---|
| Adequacy test | Products too risky for some customers | Access dependent on knowledge and experience |
| Limits on leverage | Losses amplified by borrowed money | Reduction of maximum exposure |
| Detailed information | Rates, commissions and guarantees that are difficult to understand | More transparent conditions before accession |
| DeFi Warnings | Decentralized protocols without safeguards | Explicit indication of the absence of guarantees |
| Protocol checks | Cyber attacks and errors in smart contracts | Possible robustness certification |
| Token Restrictions | Using stablecoins without permission | Prohibition on intermediating certain loans |
The risks reported include insufficient information on returns and commissions, sudden changes in required guarantees, mixing of client and platform activities, scams, cyber attacks and lack of checks on ability to repay.
The Authority also refers to “chains of guarantees”: the same capital can support multiple linked operations. If the value of the collateral drops, automatic liquidations can quickly propagate losses.
How much is a high return really worth?
An interest of 8% on 10 thousand euros is theoretically equivalent to 800 euros gross in a year. The calculation, however, is only meaningful if the rate remains unchanged, the stablecoin retains its peg, the platform returns the capital and no losses, commissions or blocks occur.
A higher yield is not a trading gift: it is normally the compensation required for taking on greater risks. If the customer cannot understand which activity the interest comes from, he does not have the necessary elements to judge it.
Before joining you should check:
- which company physically receives the tokens
- whether the return is fixed, variable or just promotional
- who uses the capital and with what guarantees
- whether the tokens can be lent out again
- when it is possible to request a refund
- what happens in the event of insolvency or cyber attack
- which platform services are actually authorized.
An operator’s MiCAR authorization remains important information, but it is necessary to check which activities it covers. The name of the exchange or the presence of a license is not enough to guarantee every product distributed.
What can change for those who invest
The EBA’s proposals pave the way towards rules more similar to those applied to traditional financial services, but do not produce immediate effects. The Commission will have to decide whether to present a legislative change; negotiation, approval and application will then follow.
For now the prudential rule is to distinguish the token from the product. A compliant stablecoin may have reserves and regulated redemption rights, but when it is lent out it enters a structure with different risks.
