30s Summary

The Markets in Crypto-Assets Regulation (MiCA) new framework in Europe, going into full effect December 30th, may pose risk for stablecoin issuers, according to Paulo Ardoino. Under these rules, issuers must hold at least 60% of reserve assets in European banks. However, these banks can loan out up to 90% of their reserves, which could pose systemic risks. While it could secure more stablecoin reserves in banks, stablecoin issuers may face risk of bank bankruptcy. Fears are mounting that MiCA could push smaller Web3 firms to relocate to the Middle East, reducing the number of European Web3 companies.

Full Article

Big changes are on the horizon for the crypto scene in Europe, according to Paulo Ardoino. A new regulatory framework is rolling out, and it’s got some potential issues for stablecoin issuers that could really stir things up in the wider crypto world.

So, what’s happening exactly? The Markets in Crypto-Assets Regulation (MiCA) is about to become the first all-inclusive set of rules for the crypto industry. The rulebook comes into play fully on December 30th.

Here’s where things get tricky. With MiCA in place, stablecoin issuers must stash at least 60% of reserve assets in European banks. But here’s the kicker: banks can lend out up to 90% of their reserves. Ardoino, who runs Tether — issuer of the world’s largest stablecoin, USDt (which recently surpassed a whopping $120 billion market cap) — reckons this could pose “systemic risks” for stablecoin issuers.

Ardoino broke it down in an interview with Cointelegraph: if you’re managing 10 billion euros, 6 billion euros of that has to be in cash deposits. Banks can then lend out 5.4 billion euros of that, leaving only 600 million euros in the bank balance.

Stablecoin issuers have had banking problems before. Back in March 2023, Circle’s USD Coin, the world’s second-largest stablecoin, dropped below its dollar peg, hitting lows of $0.8774. This happened after Circle couldn’t get $3.3 billion worth of reserves from Silicon Valley Bank.

There’s another side to MiCA though. The new requirements will mean a bigger chunk of stablecoin reserves will be held in banks. If a bank goes bankrupt, this could be a serious issue. Ardoino noted that if you deposit 1 million euros into a European bank account with a federal deposit guarantee of up to 100,000 euros, only that amount is guaranteed if the bank fails. But, stablecoin issuers can protect themselves from potential bankruptcy by buying securities such as government bonds.

Even the world’s 19th largest bank, Societe Generale, is prepping for MiCA. It’s teaming up with Bitpanda to launch a MiCA-compliant stablecoin: the EUR CoinVertible.

The new MiCA framework isn’t all sunshine and rainbows and could drum up trouble for smaller Web3 firms. Worries are growing that MiCA could cause an exodus to the Middle East and shrink the number of European Web3 companies. Especially at risk are smaller companies with limited capital, says Anastasija Plotnikova, CEO of Fideum.

Meanwhile, crypto companies are gearing up for MiCA. Kraken exchange, for instance, took over Coin Meester, the oldest registered crypto broker firm in the Netherlands, as part of its European expansion plans.

Source: Cointelegraph