🌋 Paolo Ardoino Sounds Alarm on MiCA’s Risks to Stablecoin Issuers
posted 28 Oct 2024
Paolo Ardoino, CEO of Tether, voiced apprehensions about Europe’s MiCA regulation (Markets in Crypto Assets), which he believes could pose substantial risks to stablecoin issuers.
The European Union’s crypto regulations will come into effect on December 30, 2024.
Ardoino gives an example: a stablecoin issuer with €10 billion in capitalization would need to keep €6 billion in a bank deposit.
If the bank then lends 90% of those reserves, the stablecoin’s real backing shrinks to €600 million. This scenario clearly raises the vulnerability of stablecoin issuers if the bank were to fail.
Further reading: Stablecoins After June 30: What to Expect
He believes stablecoin issuers could better protect their assets by investing in safer securities, like treasury bills or government bonds, which would remain unaffected even if major banks collapse.
Earlier this October, Tether disclosed its plans for a new tech solution crafted specifically for the European market.
This effort responds to Coinbase’s stringent deadlines mandating MiCA compliance for all stablecoins listed on its exchange.
Major institutions like Societe Generale are also taking swift action. Partnering with Bitpanda, they are introducing EUR CoinVertible (EURCV), a euro-based stablecoin that will meet the latest European regulatory standards.
His primary concern lies with the MiCA stipulation that issuers must store at least 60% of their reserves in European banks, a condition he fears could escalate systemic risks across the broader crypto landscape.
The European Union’s crypto regulations will come into effect on December 30, 2024.
Tether’s CEO Paolo Ardoino. Source: The Business Insider
The concern centers on the need for stablecoin issuers to deposit large cash reserves in banks—institutions allowed to repurpose up to 90% of these reserves in their own operations..
Ardoino gives an example: a stablecoin issuer with €10 billion in capitalization would need to keep €6 billion in a bank deposit.
If the bank then lends 90% of those reserves, the stablecoin’s real backing shrinks to €600 million. This scenario clearly raises the vulnerability of stablecoin issuers if the bank were to fail.
Further reading: Stablecoins After June 30: What to Expect
Ardoino references the USD stablecoin de-peg event with Circle back in March 2023, caused when Circle’s reserve assets were essentially frozen after the collapse of Silicon Valley Bank.
He believes stablecoin issuers could better protect their assets by investing in safer securities, like treasury bills or government bonds, which would remain unaffected even if major banks collapse.
Earlier this October, Tether disclosed its plans for a new tech solution crafted specifically for the European market.
This effort responds to Coinbase’s stringent deadlines mandating MiCA compliance for all stablecoins listed on its exchange.
Major institutions like Societe Generale are also taking swift action. Partnering with Bitpanda, they are introducing EUR CoinVertible (EURCV), a euro-based stablecoin that will meet the latest European regulatory standards.
Moreover, in a move to strengthen its presence in the European market, Kraken has acquired Coin Meester, the oldest licensed crypto broker in the Netherlands.
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