2 days ago
Tether CEO Paolo Ardoino is sounding the alarm connected Europe’s fiscal system, informing that a question of slope failures could deed the continent successful the adjacent aboriginal owed to the intersection of risky lending and caller cryptocurrency rules.
Ardoino, during an interrogation with the Less Noise More Signal podcast, took purpose astatine the European Union’s regulatory model for stablecoins, which helium said pushes companies similar Tether to support the bulk of their reserves—up to 60%—in uninsured slope deposits.
In his scenario, that could mean holding 6 cardinal euros of a 10 cardinal euros-pegged stablecoin successful tiny banks with minimal protection. “The slope security successful Europe is lone 100,000 euros,” helium said. “If you person 1 cardinal euros, that’s similar spitting connected a fire.”
European banks, similar each different bank, run connected a fractional reserve, Ardoino added. “They tin lend retired 90% of it to radical that privation to bargain a house, commencement a business, and each of that.” In his hypothetical 6 cardinal euros scenario, this would mean 5.4 cardinal euros would beryllium lent retired by the bank.
He likened the setup to the lead-up to Silicon Valley Bank's illness successful 2023, erstwhile a flood of redemptions exposed the mismatch betwixt deposits and existent liquidity. Ardoino warned that European banks run nether akin fractional reserve models that could unravel nether pressure. A 20% redemption event, helium estimated, could permission banks abbreviated billions.
"As a stablecoin issuer, you spell bankrupt — not due to the fact that of you, but due to the fact that of the bank. So the slope goes bankrupt and you spell bankrupt, and the authorities would say, ‘Told you so, stablecoins are precise dangerous,” Ardoino said.
Regulations successful Europe, helium added, are made to effort to assistance banks successful the bloc and bring them liquidity, but this created “huge systemic risk.” The largest banks successful Europe, similar UBS, would “not slope stablecoins,” pushing stablecoin issuers to usage smaller banks, furthering the risk.
The comments travel arsenic Tether plans to motorboat a U.S.-based stablecoin product, and arsenic the stablecoin issuer keeps investing successful assorted projects extracurricular of the ecosystem, having recently raised its involvement successful Latin American shaper Adecoagro.
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