Tether cites MiCA’s 60% bank reserve rule in decision to avoid EU license

Tether, the issuer of the world’s largest stablecoin by circulation, has clarified that the European Union’s Markets in Crypto-Assets (MiCA) framework’s reserve requirements played a key role in its decision not to seek authorization within the EU. CEO Paolo Ardoino stated that Tether declined to pursue MiCA licensing due to the mandate for significant stablecoins to place at least 60% of their reserves in commercial bank deposits.

Tether points to reserve concentration risk

MiCA, the EU’s comprehensive crypto-assets regulation, stipulates that e-money token issuers must retain at least 30% of reserves in deposits at credit institutions. For stablecoins classified as “significant,” the threshold rises to 60%. Paolo Ardoino has consistently argued that concentrating the majority of stablecoin reserves with commercial banks could introduce counterparty risk, rather than enhancing the stability that regulators intend.

This view has gained traction after the collapse of several banks in 2023. In particular, the failure of Silicon Valley Bank highlighted the risk of stablecoin issuers holding substantial reserves in a single financial institution. Circle, the company behind USDC, disclosed that $3.3 billion of its assets were held at the failed bank, briefly disrupting the stablecoin’s liquidity and access to funds.

Paolo Ardoino has argued that requiring a majority of reserves in commercial banks creates unnecessary risk, citing recent real-world cases where such concentration led to temporary funding issues for other stablecoin issuers.

Tether’s reserve strategy differs markedly from that dictated by MiCA. As of June, the firm issued $184.6 billion in USDT, with the majority of reserves allocated to U.S. government securities and short-term liquidity facilities. The company’s assets exceeded its liabilities by roughly $4.11 billion at the end of the second quarter.

Tether Limited operates as the primary issuer of USDT, a widely used stablecoin designed to maintain a 1:1 peg with the U.S. dollar by holding a pool of liquid assets as backing.

Mini dictionary: MiCA (Markets in Crypto-Assets) is the European Union’s regulatory framework for cryptocurrencies and stablecoins, aiming to standardize crypto oversight, user protections, and reserve management rules across the EU.

EU central banks urge shift from fixed deposit thresholds

In a development that aligns partially with Tether’s concerns, the European Central Bank (ECB) and national central banks recently recommended eliminating fixed minimum thresholds for bank deposits held as stablecoin reserves. Instead, they favor introducing liquidity requirements based on assets maturing within one and five working days.

This recommendation is rooted in the broader goal of promoting financial stability in the EU’s banking sector. Central banks warned that an increase in substantial deposits from stablecoin issuers—at the expense of traditional retail deposits—could make European lenders more vulnerable during periods of market stress.

Large, concentrated deposits may be quickly withdrawn if stablecoin holders rush to redeem their funds, potentially increasing liquidity risks for banks. Despite these warnings and recommendations to amend MiCA’s approach, the current requirements remain in place until any formal regulatory update is adopted by the EU.

The ECB and other central banks have stressed that mandatory deposit levels could contribute to financial instability if not balanced with appropriate short-term liquidity measures.

At present, MiCA’s 30% and 60% deposit thresholds for e-money and significant e-money tokens continue to apply. Tether remains outside the MiCA authorization regime for USDT, with its EU market position still impacted by the unresolved reserve rule.