Paolo Ardoino, the CEO of Tether, a company behind the popular stablecoin USDT, has raised concerns about the potential risks that the new European crypto regulation, MiCA (Markets in Crypto-Assets), could pose to banks. In an interview with Forbes, Ardoino criticized MiCA’s requirement for stablecoin issuers to hold 60% of their reserves in non-insured cash deposits, citing the incident involving Circle and Silicon Valley Bank in 2023 as a cautionary tale.
According to Ardoino, the high reserve requirement imposed by MiCA could actually increase risks rather than reduce them. He pointed out that the regulation also places restrictions on trading activities, which could further complicate the situation. Ardoino highlighted the fact that if stablecoins are blamed for any issues that arise from these regulations, it could have serious implications for the entire industry.
Moreover, Ardoino warned that the liquidity pressures created by large-scale redemptions could result in systemic risks for European banks. He explained that if a stablecoin with $10 billion in circulation is required to hold $6 billion in cash deposits, banks might struggle to meet redemption requests if a significant amount of funds are withdrawn at once. This could potentially lead to a liquidity crisis and even bankruptcy for some banks.
In summary, Ardoino emphasized that while regulations like MiCA may aim to protect investors and ensure financial stability, they could inadvertently create more problems than they solve. He urged regulators to consider the potential consequences of such stringent requirements on stablecoin issuers and the broader financial system.
Overall, the concerns raised by Paolo Ardoino shed light on the complexities and challenges associated with regulating stablecoins in the rapidly evolving crypto landscape. As the industry continues to grow and innovate, finding the right balance between innovation and risk management will be crucial for ensuring a stable and sustainable financial ecosystem.