The European regulation MiCA, which will come into full effect on December 30, imposes new requirements on stablecoin issuers, such as the obligation to retain at least 60% of their reserves in European banks. Paolo Ardoino, CEO of Tether, believes that these rules could turn banks into hotbeds of systemic risk for stablecoins, threatening the stability of the entire crypto ecosystem.
MiCA: A New Regulatory Framework That Worries Paolo Ardoino
The fact that 90% of bank reserves are lent out means that the concentration of stable assets on bank balance sheets could quickly destabilize the entire system in the event of a major bank’s bankruptcy. For example, a manager with 10 billion euros would be required by MiCA to deposit 6 billion euros in cash in a bank. If that bank lends out 5.4 billion of those deposits, only 600 million remains available to handle potential withdrawals. This puts stablecoin issuers and their users at the mercy of bank management practices.
Banking Troubles for Stablecoins: Cause for Concern
The requirements imposed by MiCA recall a recent incident: in March 2023, Circle, the issuer of USDC—the second-largest stablecoin in the world—saw its currency lose parity with the dollar, falling to 0.8774 USD. This devaluation followed the collapse of Silicon Valley Bank, where Circle had 3.3 billion dollars in reserve. Unable to withdraw these funds in time, Circle found itself in a critical situation, exposing the vulnerability of stablecoins to banking failures.
The new requirements set by MiCA may provoke similar scenarios if other banks encounter difficulties. Ardoino points out that in the event of a bank’s bankruptcy, only 100,000 euros of deposits are guaranteed in Europe, with the remaining amounts being absorbed by liquidation procedures. This banking guarantee limit exposes stablecoin funds to illiquidity risks if an institution defaults, creating potential chaos in the crypto market.
Solutions and Strategies for Stablecoin Issuers in Europe
Despite these constraints, Ardoino suggests ways for issuers to protect themselves by diversifying their reserves into financial instruments such as Treasury bills or government bonds. Unlike bank deposits, these securities have a stable nominal value, which allows assets to be transferred in the event of a bank’s bankruptcy. However, this solution imposes additional costs on issuers and reduces fund management flexibility.
Some major financial players are already preparing for MiCA, such as Société Générale, which has launched the EUR CoinVertible stablecoin (EURCV) in partnership with Bitpanda to comply with European regulations. This proactive positioning represents a strategic adaptation to MiCA rules, enabling them to benefit from the new regulation while minimizing risks.
Major Challenges for Small Players in the Web3 Ecosystem
For small businesses and startups in the web3 sector, the implications of MiCA pose significant challenges. Anastasija Plotnikova, CEO of Fideum, highlights that regulatory compliance could lead to market consolidation and encourage large groups and investment funds to acquire young startups. This predatory trend could drive talent towards more welcoming jurisdictions, such as the Middle East, where regulations are more favorable.
Companies like Kraken, which recently acquired the Dutch broker Coin Meester, are accelerating their expansion in Europe to meet the new requirements. However, for many smaller players, MiCA risks imposing heavy constraints, limiting the diversity of the ecosystem and favoring large financial groups with the resources to comply with this strict framework.
