EU MCA rules create ‘systemic’ banking risks to stability coin – Tether CEO

Europe's upcoming regulatory framework will introduce banking issues for stablecoin issuers that could threaten the stability of the broader crypto space, says Paulo Arduino.

The Market in Crypto-Assets Regulation (MiCA) is the first comprehensive regulatory framework for the crypto industry and will be fully implemented on December 30. Under MiCA, stablecoin issuers are required to hold at least 60% of reserve assets. In European banks.

Considering that banks can lend up to 90% of the reserves, this can introduce “strategic risks” for “stablecoin” issuers, Tether CEO Arduino – the world's largest stablecoin (USDT) issuer, which recently exceeded $120 billion in market capitalization.

Arduino shared his concerns with Cointelegraph in an interview at Plan B in Lugano, Switzerland.

“If you have €10 billion under management, you need to deposit €6 billion in cash. It is 60% of 10 billion euros. We know that banks can lend 90% of their balance sheet. Therefore, out of 6 billion euros, they lent 5.4 billion euros to people […] 600 million euros remain in the bank balance.

Tether's Paolo Arduino, interview with Zoltan Vardai of Cointelegraph, clip 1. Source: YouTube

Some of the most prominent stablecoin issuers have experienced banking issues in the past. In March 2023, Circle's USD Coin (USDC) — the world's second largest stablecoin — lost its dollar peg, falling to $0.8774.

The liquidation comes after Circle failed to withdraw $3.3 billion in deposits from Silicon Valley Bank, which held $40 billion before shutting down operations on behalf of the stablecoin issuer.

Related: Societe Generale Forges with Bitpanda for Euro Stablecoin Ahead of MiCA

MCA: A step back for a stable coin, but there is a silver lining for issuers.

The bank reserve requirements imposed on MiCA mean that an increasing number of stablecoin reserves are held on bank balance sheets, with significant implications in the event of a bank failure. Arduino says:

“You put that €1 million in a bank account in Europe with a federal deposit guarantee of up to €100,000. So the money you deposit in the bank is guaranteed 100,000 euros, and if the bank goes bankrupt, you get 100,000 euros and then everything goes into bankruptcy because the money you deposited goes into the bank's balance sheet. “

Still, Arduino added that stablecoin issuers under the new MiCA regime can protect themselves from potential losses through collateral.

“How you protect against that is you buy things like T-bills or government bonds or something like that. If the bank goes bankrupt and you have securities, the securities are nominal. So they come back to you and you move them to another bank.”

Some large financial institutions are preparing for the upcoming MCA 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-certified Euro CoinVertible (EURCV).

Related: Europe's biggest banks thanks to crypto regulations – Bitpanda

For small Web3 companies, MiCA improvements are a growing concern.

Tether's Arduino isn't the only industry expert concerned about improvements to the MCA framework.

Regulatory compliance experts are concerned that MiCA will lead to migration to the Middle East and reduce the number of European Web3 companies.

Anastasija Plotnikova, CEO and founder of Fidium, a regulatory and blockchain infrastructure firm focused on institutions, said this consolidation is particularly relevant for smaller companies with limited capital.

She told Cointelegraph:

“It's going to lead to a lot of consolidation. It's going to be a lot of predatory, VC practices or big crypto companies just buying the talent, buying this off the shelf. But it is what it is.”

Crypto companies are gearing up for MiCA, including the Kraken exchange, which acquired Coin Meister, the Netherlands' oldest registered crypto brokerage firm, as part of its European expansion.

What are stablecoins and how do they work? Source: Cointelegraph

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