Europe’s MiCA Regulation Raises Concerns for Stablecoin Issuers and Web3 Firms

Europe's upcoming Markets in Crypto-Assets Regulation (MiCA), effective December 30, poses significant challenges for stablecoin issuers by requiring them to hold at least 60% of reserves in European banks.

Tether’s CEO, Paulo Ardoino, warns that this could introduce systemic risks, as banks can lend out up to 90% of their deposits. For instance, a stablecoin issuer managing €10 billion would need to deposit €6 billion, leaving only €600 million accessible after banks lend out most of the funds.

The MiCA regulations also mean that a larger share of stablecoin reserves will be held on bank balance sheets, which could be problematic if a bank fails.

Ardoino emphasizes that while deposits are insured up to €100,000, anything above that would be at risk in bankruptcy. He advises stablecoin issuers to invest in securities like treasury bills to protect against bank failures.

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In response to MiCA, major financial institutions are gearing up, with Societe Generale partnering with Bitpanda to launch the euro-denominated EUR CoinVertible.

However, concerns arise that MiCA may lead to the exodus of smaller Web3 firms from Europe, as larger companies may consolidate and acquire talent from their smaller competitors.

Companies like Kraken are also preparing for the regulatory changes by acquiring established crypto firms to expand their European presence.

Kosta Gushterov