Tether CEO Paolo Ardoino has raised concerns about the potential systemic risks posed by Europe’s MiCA regulations on stablecoins, specifically the high cash reserve requirements.

As the head of Tether, the largest stablecoin by market capitalization, Ardoino is wary of the new European crypto legislation, known as Markets in Crypto-Assets (MiCA). He believes that the requirement for stablecoin issuers to hold 60% of their reserves in non-insured cash deposits could create significant risks for banks.

In an interview, Ardoino drew comparisons to Circle’s experience with Silicon Valley Bank in 2023. Circle had over $3 billion of its $40 billion USD Coin (USDC) reserves stuck at the collapsed lender, highlighting the dangers of large, uninsured deposits.

“I don’t want to endanger those 300 million people holding USDT because I have to keep the 60% in uninsured cash deposits in a European bank,” Ardoino stated.

Ardoino argued that MiCA’s high reserve requirement could increase risks rather than mitigate them. He noted that the regulation also imposes restrictions on trading and other operations, which could have unintended consequences.

“That restriction improves or reduces the risk. Conversely, a 60% cash deposit requirement increases the risk,” he explained.

He also highlighted the potential liquidity issues that could arise from large-scale redemptions. In a scenario where a $10 billion stablecoin must keep $6 billion in cash deposits, banks could lend out 90% of that amount. This would leave only $600 million on their balance sheets. If a $2 billion redemption request occurs, the bank would struggle with only $600 million in reserves, potentially leading to bankruptcy.

“Everyone will blame the stablecoins, but even more so, in this way, you can prove, and it’s easy to understand that that type of requirement of MiCA will create a systemic risk for European banks,” Ardoino said.

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