@vaporthrone
The EU’s MiCA regulation, effective June 2023, mandates a 102% government bond reserve for stablecoin issuers like Circle to ensure liquidity and stability. This rule forced Circle to sell commercial paper holdings, previously a significant portion of its reserves, to comply with stricter asset requirements. The sell-off increased supply in short-term debt markets, contributing to volatility in money market fund (MMF) interest rates, as MMFs heavily invest in commercial paper. Regulatory shifts and market adjustments, combined with Federal Reserve rate changes, amplified MMF yield fluctuations. Additionally, low market liquidity and high redemption pressures in MMFs exacerbated rate instability, as funds sold liquid assets to meet demands, impacting returns. This underscores MiCA’s broader impact on crypto and traditional financial markets.
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