Tether CEO warns MiCA stablecoin rules could pose ‘systemic risks’ to EU banks

Tether CEO Paolo Ardoino is concerned that Europe’s MiCA regulations, imposed due to excessive cash reserve requirements for stablecoins, could pose systemic risks to banks.

Paolo Ardoino, the company behind Tether (USDT), the largest stablecoin by market cap, appears concerned about the new European crypto legislation known as MiCA (Markets for Crypto Assets), saying it could create “systemic risks” for banks.

In an interview with Forbes, Ardoino criticized MiCA’s requirement that stablecoin issuers hold 60% of their reserves in uninsured cash deposits, likening it to the incident Circle experienced with Silicon Valley Bank in 2023, when more than $3 billion of the $40 billion USD Coin (USDC) reserves remained with the bankrupt bank.

“I don’t want to put at risk the 300 million people who hold USDT because I have to keep 60% of it in uninsured cash deposits in a European bank,” Paolo Ardoino said in an interview.

“Everyone will blame stablecoins”

The Tether CEO argued that MiCA’s high reserve requirement could exacerbate rather than reduce risks, noting that the regulation also creates “restrictions on how much you can trade or earn.”

“People have asked me if I’m concerned about that. I’m not. That’s a restriction to create a sandbox or a testbed, and that’s fine. That restriction increases or decreases the risk. Conversely, a 60% cash deposit requirement increases the risk,” he explained.

Ardoino also touched on the potential pitfalls of the regulation, saying it could lead to European banks facing “systemic risk” due to liquidity pressures caused by large-scale repayments.

The Tether CEO illustrated this with a scenario where a $10 billion stablecoin would need to hold $6 billion in cash deposits, allowing banks to lend out 90% of that amount. That would leave only $600 million on their balance sheets. If a $2 billion repayment demand were to materialize, similar to the pressure Tether faced in 2022, the bank would be left struggling with only $600 million in reserves, Ardoino noted, which could lead to insolvency.

“Everyone will blame stablecoins, but more importantly, this way you can prove it and it is easy to understand that such a requirement from MICA will create a systemic risk for European banks,” the Tether CEO said.