9 hours 10 minutes ▪ 4 minutes read ▪ Written by Evans S.
The European Union’s new MiCA (Markets in Cryptoassets) regulation promises to shake up the world of cryptocurrencies. The legal framework is set to take effect by the end of the year, and industry players such as Tether CEO Paolo Ardoino have expressed concerns. He said bank reserve requirements imposed on stablecoins could threaten the stability of the sector and create unprecedented systemic risk.
Strict banking requirements: a ticking time bomb
The MiCA directive requires stablecoin issuers to keep at least 60% of their reserves in European banks. While this number may seem reasonable, it can have worrying implications.
In fact, banks are allowed to lend up to 90% of their reserves. As a result, most of the funds deposited by stablecoin issuers will effectively be redistributed in the form of loans, reducing the liquidity of these funds in case of urgent need.
Paolo Ardoino, who heads Tether, isn’t afraid to warn against what he calls “systemic risk.” If a troubled bank declares bankruptcy, only weak guarantees can recover some of the deposited funds, he said. This poses a real security dilemma for stablecoins that are supposed to be as reliable as the dollar or euro.
This case is not theoretical. In March 2023, the USDC stablecoin lost parity with the dollar due to funds being blocked at Silicon Valley Bank. This precedent highlights the vulnerability of stablecoins to banking risks.
Stablecoin stability at risk
MiCA not only raises questions about the stability of banking operations, but also threatens the stability of stablecoins themselves. In fact, stablecoin issuers may not be able to maintain parity with fiat currencies if a large portion of their reserves are illiquid. If this happens, users will lose trust and this will cause serious damage to the cryptocurrency market.
To counter this threat, some issuers are considering diversifying their reserves by investing in government bonds and bonds to ensure immediate liquidity in the event of a bank failure. However, this solution does not completely solve the problem as it is still subject to the whims of financial markets.
Faced with this pressure, many companies may simply choose to circumvent the European regulatory framework.
Experts believe that MiCA could prompt some crypto players to relocate to more flexible regions such as the Middle East. This flight will weaken Europe’s blockchain ecosystem, reduce innovation and limit opportunities for local startups.
In conclusion, although the MiCA requirements are aimed at financial protection, they risk having the opposite effect for Europe’s crypto sector. For stablecoins, the challenges of staying true to their stability promises have intensified, raising questions about whether Europe will succeed in adapting regulations to avoid a mass exodus of crypto players. are. On the other hand, the Trump effect will accelerate investment in cryptocurrencies.
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Evans S.
The appeal of Bitcoin in 2017, creating important documents. This essay aims to revitalize Avance, which is the forefront of transactions and the center of virtual currency. En tant que redacteur, il aspire à fournir en permanence un travail de haute qualité qui reflète l’état du secteur dans son ensemble.
Disclaimer
The views, ideas and opinions expressed in this article are solely those of the author and should not be construed as investment advice. Please do your own research before making any investment decisions.
