CEO of Tether Paolo Ardoino is afraid of the new law that the European Union has decided, MiCA is the full name of the Markets in Crypto-Assets, because it would bring about “systemic risks” in the European bank environment. The official made his statement.
MiCA’s Cash Reserve Requirements
Paolo Ardoino recently talked to Forbes and mentioned the demand that the law projects on these stablecoin issuers: they have to assure 60% of reserves by non-insured cash deposits. Comparing his vision to the 2023 incident with Circle’s USD Coin (USDC) and Silicon Valley Bank, he mentioned that USDC reserves lost nearly $3 billion in the problems of the bank that went into liquidation.
Consequently, He does not want to imperil those who hold USDT because he is obliged to hold uninsured cash reserves of European bank to the extent of 60% rather than 100% prescribed by the regulation Ardo said.
Risks Exacerbated, Not Mitigated
According to his assessment, the temporary requirement could cause a spectacular rise of risks, even though in the beginning operators as well as track traders may feel they are in safer waters. He informed that the law is a double-edged sword: it restricts the operations and trading which, he admitted, can create a “sandbox”. But still, he insisted that 60% of the cash deposit which brings an increased risk on the whole is the criterion.
Potential Systemic Risks
He talked on MiCA legislation and the idea that it may cause the European banks to face the great outflow in a quick liquidation situation, in the past the main USDT lender was affected by such redemption pressures as well. Say for example the issuer of a $10 billion stablecoin had to put $6 billion as a cash deposit. Banks may lend 90% of the borrowed amount on the sidelines, leaving only $600 million to show in their financial statements. You will be asked to redeem $2 billion from the banks as similar experiences to what happened to Tether came up.
“People usually mean stablecoins such as Tether or USDT when speaking about cryptocurrencies but it does not really change the fact that this way one can even prove that such requirements for MiCA will become a systemic risk for European banks,” Ardoino concluded, and this is very easy to understand.
Conclusion
Ardoino’s warnings about the potential systemic risks posed by MiCA’s stablecoin regulations underline the necessity to carefully analyze and possibly adjust the law. As Europe continues its crypto regulations, the reduction of the operational risk and the viability of the services remain a focal issue of the discussion.
