- Tether CEO Paolo Ardoino criticizes the EU’s MiCA regulation, citing risks to stablecoins and financial stability.
- MiCA’s 60% reserve requirement in EU banks could increase vulnerabilities in the banking sector.
- EU deposit insurance may be insufficient for large stablecoin issuers, posing additional risks.
- Ardoino references Silicon Valley Bank’s 2023 collapse as a potential risk under MiCA.
Tether’s CEO, Paolo Ardoino, voiced his deep concerns regarding the European Union’s just-implemented Markets in Crypto-Assets (MiCA) regulation as a huge threat to stablecoin and system-wide financial stability.
In an interview recently, Ardoino slammed MiCA for having potential increases in systemic risks rather than decreasing them. The regulation came into force on June 30 and places stringent requirements on the operation of stablecoins within the European Economic Area. That reportedly includes its requirement that at least 60% of reserves backing stablecoins be held in European Union bank accounts.
Tether CTO Warns of Banking Vulnerabilities Under MiCA
Ardoino argues that this stipulation could lead to dangerous vulnerabilities within the banking sector. He highlighted the practice of fractional reserve banking, where financial institutions keep only a portion of deposits on hand for immediate withdrawal. This model, he suggests, leaves banks susceptible to sudden withdrawals or “bank runs,” which could be exacerbated under MiCA’s requirements.
Furthermore, Ardoino pointed out the limitations of EU bank deposit insurance, which only covers amounts up to $100,000. For major stablecoin issuers like Tether, which manage vast reserves, this level of insurance may be insufficient, potentially exposing them to greater financial risk.
Ardoino also pointed to the 2023 collapse of Silicon Valley Bank as a warning example. The California-based bank, with large reserves of the USD Coin (USDC), suddenly faced a bank run leading to de-pegging of the stable coin; a situation he argues MiCA regulation can be seen repeating.
“Silicon Valley Bank went belly up — we all know about that, and our main competitor almost died,” Ardoino pointed out, stressing the potential risks that similar circumstances could generate under this new regulatory framework.
With the EU pushing through MiCA, the warnings from Ardoino reflect an ongoing debate over how to best regulate a fast-evolving market in cryptocurrencies without creating new threats to financial stability.
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