Regulation
Tether CEO Warns MiCA Stablecoin Rules Could Pose ‘Systemic Risks’ to EU Banks
Paolo Ardoino, CEO of Tether, is concerned that Europe’s MiCA stablecoin regulations, due to excessive liquidity reserve requirements, could pose systemic risks to banks.
Paolo Ardoino, CEO of the company behind the largest stablecoin by market capitalization, Tether (USDT), seems concerned about the new European legislation on cryptocurrencies, known as Not (Cryptocurrency Markets), saying it could create “systemic risks” for banks.
In a interview With Forbes, Ardoino criticized MiCA’s requirement for stablecoin issuers to hold 60% of their reserves in uninsured cash escrows, drawing parallels with Circle Accident with Silicon Valley Bank in 2023, when over $3 billion of its $40 billion USD Coin (USDC) the reserves were blocked with the creditor in crisis.
“I don’t want to put those 300 million people who hold USDT at risk because I have to keep 60% in uninsured cash deposits in a European bank,” Paolo Ardoino said in the interview.
“Everyone will blame stablecoins”
Tether’s CEO argued that MiCA’s high reserve requirement could exacerbate risks rather than mitigate them, noting that regulation also creates “restrictions on how much you can trade or earn.”
“People have asked me if I’m worried about this. I’m not. It’s a restriction to protect or create a sandbox, which is fine. This restriction enhances or reduces risk. On the contrary, a 60% cash deposit requirement increases risk,” he explained.
Ardoino also addressed the potential pitfalls of regulation, suggesting it could lead to a situation where European banks would face “systemic risk” due to liquidity pressures imposed by large-scale redemptions.
Tether’s CEO illustrated this with a scenario where a $10 billion stablecoin needs to maintain $6 billion in cash deposits, allowing banks to lend out 90% of that amount. That would leave just $600 million on their balance sheets. If a $2 billion repayment request were to occur, similar to the pressure Tether faced in 2022, Ardoino noted, the bank would struggle with just $600 million in reserves, potentially leading to bankruptcy.
“Everyone will blame stablecoins, but more importantly, this way, you can demonstrate, and it’s easy to understand, that this kind of MICA requirement will create systemic risk for European banks,” said the Tether CEO.