Warnings from Tether’s CEO
In a recent discussion with Pascal Hügli, Paolo Ardoino, the CEO of Tether, expressed dire predictions for the future of European banks, forecasting that numerous institutions may face catastrophic failures in the next several years. Ardoino attributes these potential collapses to the European Union’s stringent regulations surrounding stablecoins, which he believes exacerbate systemic risks rather than mitigating them.
Concerns Over Reserve Requirements
Ardoino highlighted a troubling aspect of these regulations: stablecoin issuers are mandated to maintain a significant percentage—60%—of their reserves in uninsured cash deposits within European banks. He explained this with a hypothetical scenario where a stablecoin, with a market capitalization of €10 billion, must keep €6 billion in deposits. However, since these deposits only have a safety net of €100,000, the vast majority of funds are vulnerable to bank lending practices.
“All banks operate on a fractional reserve system,” Ardoino noted, elaborating that these banks could potentially lend out up to 90% of deposits—meaning they could loan out €5.4 billion while retaining just €600 million on hand.
Potential Consequences of Bank Insolvency
In the event of a significant surge in redemption requests—suppose 20% of the stablecoin is redeemed, or €2 billion—these banks could find themselves unable to fulfill the obligations. Ardoino warned that in such a scenario, while the stablecoin issuer follows the regulations, the bank’s insolvency would ultimately lead to the issuer’s collapse as well, creating a chain reaction of bankruptcies.
Critique of the Regulatory Landscape
He further criticized the regulatory landscape, claiming that it incentivizes large banks to avoid stablecoin dealings, thus driving issuers toward smaller, riskier banking institutions. Ardoino asserted, “This will lead to an impending banking crisis in Europe,” drawing parallels to the collapse of Silicon Valley Bank in 2023, which nearly triggered a larger financial catastrophe.
Ardoino firmly predicted, “Many banks will face failures in Europe over the next few years.”
