EU Stablecoin Regulations Threaten Bank Collapses Warns Tether Chief Executive
Warning Bells Ring Over New EU Stablecoin Rules
Paolo Ardoino, CEO of cryptocurrency exchange Ether, has expressed concerns about the EU's latest stablecoin regulations, suggesting they might push several banks in Europe closer to collapse. During a recent podcast interview, Ardoino shed light on how current regulations could trigger a crisis similar to the one experienced with Silicon Valley Bank in 2023.
According to Ardoino, requiring stablecoin issuers to hold 60% of reserves in uninsured European bank deposits is a risky move. He broke down the hazards by using a straightforward example: "Suppose you have €10 billion in market cap of your stablecoin in Europe. 60% needs to be kept in uninsured cash deposits in a bank. Banks typically lend out most of that money, and if there are substantial redemptions, the bank won't have enough cash on hand to meet the demand, which could lead both the bank and the stablecoin issuer to default."
He further argued that the regulation seems to favor the banking system over the crypto market since larger European banks are hesitant to work with stablecoin projects. This trend compels companies to rely on smaller banks with higher risk profiles. Ardoino believes this systemic weakness might replicate past banking failures witnessed elsewhere. "Mark my words, as was the case with Silicon Valley Bank in 2023, banks will face similar issues in the next few years, and many banks in Europe will crumble," he warned.
Ardoino's apprehensions add to the growing chorus of voices within the crypto sector advocating for practical and risk-aware regulatory approaches, particularly as Europe's MiCA (Markets in Crypto-Assets) framework is rolled out.
Bottom Line
Requiring stablecoin issuers to hold 60% of reserves in uninsured European bank deposits may increase credit risk, reduce diversification and liquidity, and potentially affect the competitiveness of the European crypto market. Ardoino's warnings come amidst growing concerns about the impact of the MiCA regulations and the need for more balanced, risk-conscious approaches in the crypto realm. [Source 1][Source 2][Source 5]
In this context, the EU's stablecoin regulations may pose potential risks to the technology, finance, and business sectors by increasing credit risk, reducing diversification and liquidity, and potentially affecting the competitiveness of the European crypto market. As Paolo Ardoino warned, this could lead to similar issues faced by banks in the past, such as the Silicon Valley Bank crisis in 2023.
