Europe’s forthcoming regulatory framework will introduce banking concerns for stablecoin issuers that could threaten the stability of the broader crypto space, according to Paulo Ardoino.
The Markets in Crypto-Assets Regulation (MiCA) is the first comprehensive regulatory framework for the crypto industry and is set to go into full effect on Dec. 30. Under MiCA, stablecoin issuers will be required to hold at least 60% of reserve assets in European banks.
Considering that banks can loan up to 90% of their reserves, this may introduce “systemic risks” for stablecoin issuers, according to Ardoino, CEO of Tether — the issuer of the world’s largest stablecoin, USDt (USDT), which recently surpassed $120 billion in market capitalization.
Ardoino shared his concerns with Cointelegraph during an interview at Plan B Lugano in Switzerland:
“If you have 10 billion euros under management, you have to put 6 billion euros in cash deposits. That is 60% of 10 billion euros. We know that banks can lend out 90% of their balance sheet. So of the 6 billion euros, they lend out 5.4 billion euros to people […] 600 million euros will remain in the bank balance sheet.”
Tether’s Paolo Ardoino, interview with Cointelegraph’s Zoltan Vardai, clip 1. Source: YouTube
Some of the most notable stablecoin issuers have faced bank-related issues in the past. In March 2023, Circle’s USD Coin (USDC) — the world’s second-largest stablecoin — lost its dollar peg, falling as low as $0.8774.
USDC/US dollar, all-time chart. Source: Cointelegraph
The depegging occurred after Circle could not withdraw $3.3 billion worth of reserves from Silicon Valley Bank, which held $40 billion on behalf of the stablecoin issuer before it shut down operations.
Related: Societe Generale Forge partners with Bitpanda for euro stablecoin ahead of MiCA
MiCA: A step back for stablecoin stability, but there’s a silver lining for issuers
The MiCA-imposed bank reserve requirements will mean that a growing portion of stablecoin reserves will be held on bank balance sheets, raising significant implications if a bank were to go bankrupt. Ardoino noted:
“You deposit that 1 million euros in a bank account in Europe that has a federal deposit guarantee up to 100,000 euros. So the money you deposit in the bank is guaranteed to 100,000 euros if the bank fails and goes bankrupt, you get 100,000 euros and then everything else goes in the bankruptcy process because the money that you put in goes in the balance sheet of the bank.”
Still, Ardoino added that stablecoin issuers under the new MiCA regime can protect themselves against a potential bankruptcy through securities:
“How you protect from that is you buy securities like T-bills or like government bonds or something like that. If the bank goes bankrupt and you have securities, the securities are nominal. So they will get back to you and you just move them to another bank.
Some of the largest financial institutions are preparing for the upcoming MiCA framework, including Societe Generale, the world’s 19th-largest banking group by assets. The bank has partnered with Bitpanda to launch a MiCA-compliant stablecoin, the euro-denominated EUR CoinVertible (EURCV).
Related: Europe’s largest banks are moving into crypto thanks to regulations — Bitpanda
Concerns are mounting over MiCA’s ramifications for smaller Web3 firms
Tether’s Ardoino is not the only industry expert concerned about the MiCA framework’s ramifications.
Regulatory compliance experts are concerned that MiCA will lead to an exodus to the Middle East and reduce the number of European Web3 companies.
This consolidation is especially concerning for small firms with limited capital, according to Anastasija Plotnikova, CEO and co-founder of Fideum, a regulatory and blockchain infrastructure firm focused on institutions.
She told Cointelegraph:
“It will lead to a lot of consolidation. It will be a lot more predatorial, even VC practices or larger crypto companies just buying the talent, buying this off the shelf. But it is what it is.”
Crypto firms are also preparing for MiCA, including Kraken exchange, which acquired the Netherlands’ oldest registered crypto broker firm, Coin Meester, as part of its European expansion.
What are stablecoins, and how do they work? Source: Cointelegraph
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