Most people are surprised when I tell them that under MiCA, stablecoin (EMT) issuers could theoretically invest up to 35% of their reserve into covered bonds — i.e. non-sovereign, bank-issued bonds, typically backed by mortgage pools. This comes straight from the EBA’s draft RTS (Regulatory Technical Standards) on highly liquid financial instruments (HQLA) under Article 38 MiCA, which explicitly allows “extremely high-quality covered bonds”, capped at 35% of the reserve (see screenshot below). 𝐖𝐡𝐚𝐭 𝐝𝐨𝐞𝐬 𝐚 𝐡𝐢𝐠𝐡-𝐪𝐮𝐚𝐥𝐢𝐭𝐲 𝐜𝐨𝐯𝐞𝐫𝐞𝐝 𝐛𝐨𝐧𝐝 𝐥𝐨𝐨𝐤 𝐥𝐢𝐤𝐞 𝐢𝐧 𝐩𝐫𝐚𝐜𝐭𝐢𝐜𝐞? 𝐄𝐱𝐚𝐦𝐩𝐥𝐞: • 𝐆𝐞𝐫𝐦𝐚𝐧𝐲 🇩🇪 : a Pfandbrief issued by a bank, backed by a legally segregated pool of German residential mortgages. • 𝐅𝐫𝐚𝐧𝐜𝐞 🇫🇷 : an obligation foncière issued by a specialised credit institution, backed mainly by French home loans. So technically, MiCA-regulated EMTs could be backed by bank-issued bonds whose value ultimately rests on residential mortgage pools. 3 𝐢𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐜𝐚𝐯𝐞𝐚𝐭𝐬: • The RTS are not adopted yet - even 1.5 years after MiCA's entry into application for stablecoins. The European Commission could endorse, amend, or reject the proposed EBA standards. • Additional concentration limits apply, including per-issuer caps (e.g. ~10% per covered-bond issuer, within an overall 35% limit). • To my knowledge, no MiCA-compliant EMT currently uses covered bonds in its reserve, and I would be surprised if issuers changed that. MiCA is often portrayed as the most restrictive stablecoin framework globally. This is why it sometimes surprises people when I point out that MiCA, GENIUS, and other emerging frameworks are more similar than not, and that in some areas (e.g. reserve management and attestations), MiCA arguably leaves more operational flexibility. More broadly, the current draft HQLA standards appear to place a strong emphasis (and potentially over-index) on concentration risk, while placing comparatively less weight on asset quality, safety, and liquidity. In practice, this could risk encouraging diversification away from the largest, most regulated institutions (e.g. GSIBs) or safest, most liquid short-dated sovereign bonds (e.g. US Treasury Bills) purely for concentration reasons. It will be interesting to see how the European Commission ultimately calibrates this balance. Link to the current EBA draft HQLA standards in the comments.(Patrick Hansen)