Tether CEO Paolo Ardoino said he is in discussions with European regulators about the risks posed to stablecoins by new crypto industry legislation known as MiCA, which comes into effect on June 30 of this year.
Through social media, Ardoino expressed his concern about the requirements that the MiCA (Markets in Crypto-Assets) Law will establish for stablecoin issuers, stating that these requirements are too strict and could impede the development and growth of the market in the region.
MiCA requirements are difficult to meet
In his post, Ardoino referred to the complexity and risk of complying with the backings required by the new legislation. He noted that maintaining a 1:1 liquid cash reserve, to cover refunds and claims from stablecoin holders at any given time, is not a good idea.
According to Ardoino, uninsured cash deposits in European banks pose a serious risk to the stability of the stablecoin market, since if a bank goes bankrupt, as happened in Silicon Valley in the United States last year, uninsured cash will also go bankrupt.
In his view, “stablecoins should be able to hold 100% of reserves in Treasury bills, rather than exposing themselves to bank failures by holding a large portion of reserves in uninsured cash deposits,” he said. “In the event of a bank failure, the securities revert to their rightful owner.”
On the other hand, Ardoino spoke about the current relationship between traditional banks and the cryptocurrency financial system, pointing out how difficult it is for a European bank to accept a business related to crypto assets. However, MiCA establishes that stablecoin cash deposits must be kept in at least 6 banking entities, to minimize risks.
In dialogue with European regulators
Ardoino noted that all of these concerns are being addressed in ongoing discussions with EU regulators. However, it appears that his company's stablecoin, USDT, the largest on the market, will not be regulated in Europe anytime soon.
Due to the set of rules that MiCA establishes for stablecoins, several companies that operate cryptocurrency exchange platforms have advanced measures to comply with regulation, such as the exclusion of some stablecoins for traders in the European Economic Area (EEA).
The transformation for the stablecoin market
MiCA is billed as the world’s first cryptocurrency framework. For many, this legislation lays the groundwork for creating a comprehensive regulatory framework to ensure the stability, development, and innovation of the cryptocurrency industry. However, as Ardoino puts it, the new regulation could also have a negative impact on the stablecoin market.
In addition to MiCA, in the European Union, the United Kingdom is also preparing new legislation that will regulate stablecoin trading activity, as well as token staking and cryptocurrency trading and custody. According to CoinDesk, Bim Afolami, the country’s economic secretary, said that the new crypto regulation being prepared by the UK will be available by the middle of this year and that it is part of its strategic plan to legally recognize crypto assets in the country. Meanwhile, in the United States, Senators Cynthia Lummis and Kirsten Gillibrand have introduced a new bill that seeks to ban the issuance of algorithmic stablecoins and ensure that issuers of these coins keep their assets backed 1:1 in cash or cash equivalent.
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