Tether CEO: The danger of the EU MiCA license

Note: The EU’s crypto-asset regulatory framework, MiCA, officially took effect on July 1. The European Securities and Markets Authority (ESMA) requires crypto service providers that do not hold a MiCA license to stop or limit providing services in the EU, and to help users transfer assets or move to self-custody. However, many well-known crypto companies have failed to successfully apply for MiCA licenses, including Tether. In a previous Cointelegraph interview with Tether CEO Paolo Ardoino, Paolo Ardoino revealed that Tether actively decided not to apply for Europe’s MiCA license and explained the reasons for doing so. Compiled by Jinse Finance Claw.

Paolo Ardoino: As CEO, I’ve been called “crazy” because I decided not to apply for a MiCA license. The reason is not fear of regulation or compliance—MiCA licenses are extremely dangerous for stablecoins. I need to protect our more than 400 million users worldwide, who are far less fortunate than Europeans. If a regulation doesn’t allow us to do that, then we have to give up that market—this is a decision every CEO has to make.

The reason I decided not to apply for a MiCA license is because MiCA’s requirements for stablecoins are very dangerous, and I believe they are even more dangerous for Europe’s small and medium-sized banking system.

In the coming years, several banks in Europe will go bankrupt due to MiCA license requirements, because MiCA requires that 60% of reserves be held in the form of uninsured cash deposits in European banks.

Let’s do a rough estimate: Suppose your stablecoin issuance is 10 billion euros—then you would need to keep 6 billion euros in multiple European banks. But large banks (such as UBS) do not provide banking services to stablecoin companies, so you can only turn to small banks in Europe—at least five. And since each bank has deposit limits, you must find five small banks in Europe to store that 6 billion.

The result is that this 6 billion enters those banks as uninsured cash deposits. The banks can lend it out, because their fraction of reserves is only 10%—meaning 5.4 billion euros would be loaned to people who want to buy cars, buy homes, or start businesses, and the bank keeps only 600 million euros.

Assume you face 20% redemption demand—that’s 2 billion euros. You go to the bank to withdraw. The bank only has 600 million, and the bank would go bankrupt because it can’t meet your request, and you as the stablecoin issuer would go bankrupt as well.

So I believe this is a piece of legislation that hasn’t been thought through. I support regulation, but regulation should be smart and carefully designed to protect consumers.

Therefore, I decided not to apply for a MiCA license, because I must protect our more than 400 million users worldwide—they are not as fortunate as Europeans.

I love Europe, but unfortunately, I think the European Central Bank is more eager to push the digital euro in order to control people and control how they spend, rather than genuinely caring about the best interests of its people. And outside Europe, there are hundreds of millions of people. They urgently need a payment system because the systems that exist in their daily lives—based on their local fiat currencies—are extremely useless, since fiat money depreciates extremely quickly against the U.S. dollar, Bitcoin, gold, and other assets. So I must stay true to my original mission, and I must protect these people, even from harmful regulation.

Of course, there are different euro stablecoin products in the market. We invested in grassroots euro stablecoins through Stellar. But no matter what, the European Central Bank wants to push stablecoins based on the euro. I remember that the European Central Bank once published an article or a press release expressing fear of stablecoins supported by the U.S. dollar.

What’s interesting is that they blame U.S. stablecoins as if that’s the main reason the euro failed—which is kind of funny. They don’t reflect on themselves, but instead point the finger at U.S. dollar stablecoins.

However, European exchanges should be able to do well. We are supporting them with Hadron (our tokenization technology), providing them with alternative options based on European grassroots stablecoins.

I’m a Bitcoin believer. I think protecting people’s right to hold strong assets is crucial. These assets should be carefully designed to maximize safety.

That’s my concern about MiCA’s stablecoin provisions. I know that a competitor decided to apply for MiCA, but it was those same competitors who, in 2023, had 3 billion dollars in uninsured cash deposits at Silicon Valley Bank—almost causing a collapse. In the end, the FDIC stepped in to rescue the bank, and that’s how they were saved. That’s not a good example of compliance.

Compliance is very important, but only if the regulation is reasonable. Otherwise, honestly, few companies—sorry for speaking bluntly—have the courage to give up a market of 600 million people in order to take care of 300 million people who have no other options.

It’s not the fault of Europeans, but European regulators have not truly understood what the problem is and how to solve it properly. In fact, I have taken part in discussions on many occasions, representing Tether, arguing that 100% of reserves should be held in the form of government bonds of each country (such as short-term bonds). But on the other hand, our competitors are pushing for 100% cash holdings—they clearly never learned the lesson from their mistakes.

Returning to U.S. dollar stablecoins, we want the assets held in Tether’s reserves to be the highest-quality assets possible. If you are a U.S. dollar stablecoin, you should be able to hold U.S. short-term government Treasuries—these Treasuries can be converted into cash quickly within a short time. That’s what Tether users expect from us, and that’s what we do. If a regulation doesn’t allow us to do this—such as the regulation in Europe—then we have to give up that market.

We’re good friends with Rumble (a media streaming platform). They once faced requirements from France—to block and take down certain content creators. They decided not to serve the French market, and therefore shut down their operations in France.

As a company, you have to decide whether to protect freedom of speech and financial freedom, while complying with lawful requests and enforcement requirements—Tether has never refused any lawful request from law enforcement, and that must be clear. But we would rather give up part of our customer base if that means all of our users would be affected and our product would be weakened. I’m very firm and very careful about this.

(About Bitcoin) I think this is inevitable. Both companies and countries must buy Bitcoin. I see BRICS countries’ central banks heavily accumulating gold, but that is just the habit they’ve had for decades—it’s their comfort zone, and individuals and companies are doing the same. But I believe that over the medium to long term, the more Bitcoin education there is, the more companies will follow the pioneers (those that were first to add Bitcoin to their treasuries), and then everyone else will follow. And it’s never too late to buy Bitcoin.