EU Stablecoin Regulations Predicted to Trigger Bank Collapses, According to Tether CEO's Alarming Forecast
In a recent podcast interview, Paolo Ardoino, CEO of crypto exchange Ether, has expressed concerns over the new European Union stablecoin regulations. He believes these rules could lead to a financial crisis by pushing stablecoin issuers to hold 60% of their reserves in uninsured European bank deposits, increasing the risk of both the issuers and banks going bust.
To illustrate the potential problems, Ardoino used a simple example:
Imagine you have €10 billion in market cap of your stablecoin in Europe. 60% needs to be kept in uninsured cash deposits in a bank.
With the banking system operating on a fractional reserve model, most of the cash would be lent out. In case of massive redemptions, the bank wouldn't have enough cash to fulfill demands, potentially causing both the bank and the stablecoin issuer to default. As Ardoino puts it, "As a stablecoin issuer, you go bankrupt. Not because of you, but because of the bank. So the bank goes bankrupt, and you go bankrupt."
Ardoino further argues that this setup appears to benefit the banking system rather than the crypto market, as larger European banks are reluctant to work with stablecoin projects. This forced reliance on smaller banks with higher risk profiles could lead to banking failures similar to those seen in the past.
His warning comes amid growing calls by cryptocurrency industry voices for more practical and risk-aware regulatory approaches, particularly as Europe’s MiCA (Markets in Crypto-Assets) framework is being rolled out.
- The new European Union stablecoin regulations, according to Paolo Ardoino, CEO of crypto exchange Ether, could potentially lead to financial crises by forcing stablecoin issuers to hold a significant amount of their reserves in uninsured European bank deposits.
- Ardoino's concern stems from the fractional reserve model used by the banking system, which could cause problems if there are massive redemptions, as the bank might not have enough cash to fulfill demands, potentially causing both the bank and the stablecoin issuer to default.
- Ardoino argues that this setup seems to benefit the banking system more than the crypto market, as larger European banks are hesitant to work with stablecoin projects, leading to a potential reliance on smaller banks with higher risk profiles.
- His warning is timely, as theEuropean MiCA (Markets in Crypto-Assets) framework is being rolled out, and there are growing calls from the cryptocurrency industry for more practical and risk-aware regulatory approaches.
