Tether CEO Warns EU Stablecoin Rules Could Trigger Bank Failures

Tether CEO Paolo Ardoino has issued a stark warning against the European Union’s upcoming Markets in Crypto-Assets (MiCA) regulations, arguing that new requirements could unintentionally destabilize the banking sector. At the center of Ardoino’s concerns is the rule that mandates stablecoin issuers to hold a significant portion of their reserves—at least 60%—in deposits at EU-based banks. He claims that this setup could backfire in times of financial stress and even lead to systemic bank failures.

Speaking critically of the directive, Ardoino likened the EU’s strategy to “spitting on a fire,” suggesting that it provides only a superficial layer of security while masking deeper liquidity risks. The fractional reserve nature of banking, where institutions loan out most customer deposits, means they could struggle to meet mass redemption requests from stablecoin holders during a crisis. In his view, concentrating reserves in such a fragile system increases the odds of a financial breakdown rather than providing the stability regulators are aiming for.

To illustrate the risks, Ardoino pointed to the 2023 collapse of Silicon Valley Bank (SVB), which sent shockwaves through the crypto space. Circle, the issuer of USDC, had billions in reserves parked at SVB, and the bank’s sudden failure caused USDC to temporarily lose its peg. Ardoino argues that the EU’s plan could create similar vulnerabilities for stablecoin issuers like Tether, especially if there is no flexibility to diversify reserves into safer, more liquid assets.

Instead, Ardoino recommends that regulators allow stablecoin reserves to be parked in instruments such as short-term government bonds, which are less prone to default and far more liquid. He emphasizes that a diversified reserve approach could provide more protection for users and mitigate the risk of contagion within the traditional financial system. As MiCA moves toward implementation in 2025, Ardoino is calling for deeper dialogue between regulators and crypto industry leaders to refine the framework and avoid unintended consequences.