The European Union's new MiCA (Markets in Crypto-Assets) regulation promises to profoundly shake up the crypto universe. As the legislative framework comes into effect by the end of the year, industry figures, such as Tether CEO Paolo Ardoino, are expressing concern. According to him, bank reserve requirements imposed on stablecoins could threaten the stability of the sector and generate unprecedented systemic risks.
Binding Banking Requirements: A Time Bomb
The MiCA directive requires stablecoin issuers to keep at least 60% of their reserves in European banks. This figure seems reasonable on the surface, but it could have worrying implications.
In fact, banks are authorized to lend up to 90% of their reserves. Consequence: most of the funds deposited by stablecoin issuers would de facto be redistributed in the form of loans, making these funds less liquid in case of immediate need.
Paolo Ardoino, head of Tether, does not hesitate to warn of what he calls a “systemic risk”. According to him, if a bank in difficulty were to declare bankruptcy, only weak guarantees would allow a fraction of the funds deposited to be recovered. This poses a real security dilemma for stablecoins, which are supposed to be as reliable as the dollar or the euro.
This case is not theoretical: in March 2023, the stablecoin USDC lost its parity with the dollar due to funds blocked at Silicon Valley Bank. This precedent highlights the vulnerability of stablecoins to banking risks.
Stability of Stablecoins in Danger
In addition to raising questions about banking stability, MiCA also threatens the stability of stablecoins themselves. Indeed, if reserve funds are largely illiquid, stablecoin issuers may find themselves unable to maintain parity with fiat currencies. Users would then lose confidence, which would seriously harm the crypto market.
To counter this threat, some issuers are considering diversifying their reserves by investing in government securities or bonds, in order to ensure immediate liquidity in the event of bank failure. However, even this solution does not entirely solve the problem, because it remains subject to the vagaries of the financial markets.
Faced with this pressure, many companies may simply choose to avoid the European regulatory framework.
The experts believe that MiCA could encourage some crypto players to move to more flexible regions, such as the Middle East. This flight would weaken the European blockchain ecosystem, reducing innovation and limiting opportunities for local startups.
In conclusion, MiCA's requirements, although oriented towards financial protection, risk causing an opposite effect for the crypto sector in Europe. For stablecoins, the challenge of remaining faithful to their promise of stability is intensifying – and the question arises: will Europe succeed in adapting its regulations to avoid a mass exodus of crypto players? In the meantime, The Trump effect is propelling crypto investments.
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