Originally published on: August 09, 2024
Paolo Ardoino, the CEO of Tether, has raised alarms over the potential systemic risk that the European Union’s Markets in Crypto-Assets (MiCA) regulation may pose to stablecoins and the broader banking infrastructure.
The Impact of MiCA Regulation
Since its enforcement on June 30, the MiCA regulation has placed strict constraints on stablecoin operations within the European Economic Area. One significant requirement dictates that a minimum of 60% of reserves supporting stablecoins must be securely held in EU bank accounts.
Potential Risks Unveiled
Ardoino cautioned that the conventional fractional reserve banking system, where only a portion of deposits is accessible for withdrawal at any moment, makes financial institutions susceptible to bank runs. Moreover, the CEO emphasized that EU cash deposits are insured only up to $100,000, a sum that could potentially fall short for big stablecoin issuers like Tether.
Learnings from History
Ardoino drew attention to the collapse of the California-based Silicon Valley Bank in 2023, which held substantial reserves of USD Coin and faced a run that consequently caused the stablecoin to depeg.
Reflecting on the past, Ardoino stated, “Silicon Valley Bank’s downturn serves as a vivid example of the potential pitfalls that lie ahead with MiCA implementation. The incident with our close competitor nearly ceasing operations underscores the precarious nature of these regulatory measures.”
Gain In-Depth Insights
For a comprehensive understanding of Ardoino’s perspectives on stablecoins and the implications of regulations like MiCA, delve into our exclusive interview.
Optimizing Market Dynamics and Regulatory Compliance
In the dynamic intersection of stablecoins, banking systems, and evolving regulations like MiCA, it’s crucial for industry participants to navigate carefully to maintain stability and comply with regulatory frameworks effectively. Stay informed and stay ahead in the evolving financial landscape.
