Stablecoin issuer Circle recently submitted regulatory feedback to the European Commission, once again placing the speed and structural flexibility of the EU’s digital asset framework at the forefront of industry debate. Circle’s response to the European Commission’s "Market Integration Package" not only addresses adjustments to the Distributed Ledger Technology (DLT) pilot regime, but also directly tackles the issue of stablecoins’ position within securities settlement systems. Against the backdrop of the gradual implementation of the EU’s Markets in Crypto-Assets Regulation (MiCA) and the rapid advancement of US on-chain financial market infrastructure, Circle’s statement essentially centers on the core question: "Does the regulatory framework keep pace with market development?"—a critical issue for the industry.
Core Demands: Flexible Mechanisms and Settlement Access
On March 20, 2026, Circle formally submitted feedback on the European Commission’s "Market Integration Package," focusing on two main areas: accelerating reforms to regulatory frameworks related to distributed ledger technology, and expanding the use of compliant stablecoins in securities settlement. Circle broadly supports the EU’s current direction for the DLT pilot regime—including expanding the asset classes eligible for inclusion and raising transaction volume thresholds—but also points out that the current design of fixed limits and periodic legislative updates struggles to accommodate the rapid expansion that follows market liquidity formation. Furthermore, Circle urges that crypto asset service providers be allowed to participate in the settlement account system, not just traditional banks and central securities depositories, and recommends clear rules for using compliant stablecoins as collateral in securities transactions.
Source: Circle
Policy Evolution and Key Milestones
The EU’s digital asset regulatory framework has undergone a significant transformation from fragmentation to unification over the past three years. In June 2023, the MiCA regulation officially came into effect, establishing the world’s first comprehensive regulatory framework for crypto asset markets. Meanwhile, the EU launched its DLT pilot regime in 2022, providing market participants with a policy sandbox to conduct on-chain financial activities under defined conditions.
Source: ESMA
After 2025, as the US market accelerates the tokenization of real-world assets like Treasury bonds and money market funds, the pace of the EU’s regulatory framework has come under scrutiny. In February 2026, several asset tokenization firms jointly expressed concerns that slow EU reforms could drive business abroad. In response, the European Commission released the "Market Integration Package" in early 2026, aiming to further unify capital market rules and proposing revisions to the DLT pilot regime. Circle’s feedback was submitted during the public consultation period for this package, just ahead of the March 20, 2026 deadline.
| Milestone | Key Event |
|---|---|
| June 2023 | MiCA regulation officially enacted |
| 2022 | EU launches DLT pilot regime |
| 2025 | US accelerates on-chain financial infrastructure and RWA tokenization |
| February 2026 | Multiple tokenization firms express concerns over EU regulatory pace |
| March 20, 2026 | Circle submits feedback on "Market Integration Package" |
Three Structural Constraints in the Regulatory Framework
At its core, Circle’s feedback highlights three structural constraints within the current EU regulatory framework.
The first constraint stems from the "fixed threshold" mechanism. Under the existing DLT pilot regime, each DLT trading platform is limited to a specific market scale during the pilot period. Circle argues that such fixed numerical limits fail to account for the nonlinear growth that occurs once liquidity is established, and recommends introducing "adaptive thresholds" so regulatory metrics can dynamically adjust in line with market activity and transaction volumes.
The second constraint concerns the scope of "settlement participants." Currently, cash settlement for securities transactions is restricted to banks or central securities depositories. Circle notes that while this design is robust in traditional finance, on-chain environments see substantial activity facilitated by crypto asset service providers. Excluding them from the settlement account system increases transaction complexity and lengthens operational chains.
The third constraint relates to the role of stablecoins in securities transactions. Circle specifically calls for the EU to allow MiCA-compliant electronic money tokens to be used as collateral in securities trades. This demand reflects a recognition that stablecoins are evolving from mere "payment tools" to core components of financial infrastructure. If stablecoins cannot be integrated as collateral in securities settlement, their value in institutional applications will be significantly diminished.
Diverging Positions Across the Market
Circle’s feedback has sparked three main viewpoints among market participants and regulatory observers.
Supporters believe Circle has accurately identified the "policy lag" issue that may arise as the EU regulatory framework is implemented. They emphasize that digital transformation of financial market infrastructure exhibits strong scale effects; once a critical threshold is crossed, transaction volumes and liquidity can surge exponentially in a short period. If regulatory adjustments continue to follow traditional legislative cycles, participants may be forced to either scale back operations within compliance boundaries or shift their focus to more flexible jurisdictions.
Cautious voices focus on the risks associated with "adaptive thresholds" and expanding settlement participants. While dynamic adjustment mechanisms can enhance regulatory flexibility, they also demand greater judgment and responsiveness from regulators. Without clear risk triggers and circuit breakers, overly flexible frameworks could undermine market stability. Including crypto asset service providers in the settlement account system would also further connect risk pathways between traditional finance and crypto markets.
Observers are more concerned with the competitive dynamic between the EU and US in regulatory pacing. They note that Circle’s feedback repeatedly references US progress in on-chain market infrastructure, signaling that "capital and projects may flow based on regulatory efficiency." However, the EU’s standards for consumer protection and prudent regulation remain relatively clear, which can be attractive to some institutional investors who value regulatory certainty.
Three Transmission Effects on Industry Structure
If Circle’s recommendations are partially adopted in the EU’s subsequent legislative process, the industry could see three major impacts.
First, the role of stablecoins in securities settlement systems will become more defined. Currently, MiCA’s classification of electronic money tokens focuses primarily on payment scenarios, while securities settlement involves more complex legal, clearing, and collateral mechanisms. If the EU explicitly allows compliant stablecoins as collateral in securities transactions, it will drive stablecoins’ transition from retail payment tools to institutional-grade financial infrastructure components.
Second, the DLT pilot regime will have a clearer path from "experimental phase" to "mainstream adoption." The current pilot’s limited duration makes it difficult for participants to commit long-term capital and build robust systems. If the EU establishes a clear transition path and permanent regulatory framework, it will reduce uncertainty for on-chain financial businesses and attract more traditional financial institutions.
Third, competition between the EU and US over digital asset regulation will enter a new phase. The US holds a first-mover advantage in on-chain market infrastructure, reflected in market depth and project volume, while the EU’s strengths lie in regulatory completeness and consumer protection. This rivalry essentially pits "flexibility" against "stability" as regulatory models, and its outcome will directly shape the global distribution of crypto asset markets.
Three Possible Scenarios for the Future
Based on current information and key variables, three evolutionary scenarios may unfold over the next 12 to 24 months.
Scenario one: The EU adopts the main recommendations and accelerates reforms. In this scenario, the European Commission implements "adaptive thresholds" and expands settlement participants by the end of 2026, driving legislative revisions in 2027. Stablecoin use in securities settlement gains clear legal backing, and the scale of on-chain financial transactions within the EU grows significantly between 2027 and 2028. This outcome depends on rapid internal consensus among EU legislators and unified views on risk controllability by member state regulators.
Scenario two: The EU partially adopts recommendations and reforms progress gradually. Here, the EU makes limited adjustments to the DLT pilot regime, such as moderately raising fixed thresholds, but refrains from introducing dynamic mechanisms. Rules for stablecoin collateral remain under discussion without clear legal basis. Market participants maintain a wait-and-see attitude, and some projects may shift their focus to other markets. This scenario is highly likely and aligns with the EU’s tradition of incremental regulatory reform.
Scenario three: EU reforms stall and market activity concentrates in the US. In this scenario, legislative procedures stagnate due to internal divisions, and the DLT pilot regime fails to expand after 2026. The US continues to lead in on-chain financial infrastructure, with more European institutions participating in US on-chain markets via subsidiaries. The likelihood of this scenario depends on shifts in EU political dynamics and the ongoing direction of US regulatory policy.
Conclusion
On the surface, Circle’s feedback to the EU appears to be a technical suggestion regarding the DLT pilot regime and stablecoin settlement rules. In reality, it represents a deep dialogue between the digital asset industry and regulators about "policy pacing." As financial market digitization accelerates, regulatory frameworks must not only prioritize risk management, but also ensure alignment with the actual speed of market evolution. For market participants, monitoring how extensively the EU incorporates such feedback will be a crucial indicator of the region’s future direction in digital asset regulation.
