European banks face imminent collapse, according to Tether CEO Paolo Ardoino, due to their exposure to risky assets and inadequate risk management practices.
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Paolo Ardoino, charismatic CEO of Tether, has sounded the alarm on European banking system fragility. In a fiery exchange with Pascal Hügli, Ardoino doesn't hold back, doubting EU stablecoin regulations' effectiveness at reducing risks.
Ardoinospeaks about the threats of fractional reserves, used extensively by European banks, where only a fraction of deposits are held as cash reserves - the rest being loaned out or invested. This model can crumble under mass withdrawals or heavy redemption requests.
Imagine a 20% redemption wave! Institutions holding €6 billion in uninsured cash deposits may scatter like dominoes. Smaller banks, plagued with more risk, will be rallying the reserves. According to Ardoino, as banks go kaput, so will stablecoin issuers.
He claims the rules set to boost liquidity for the banks will simply drive stablecoin issuers towards riskier banking partners. And the endgame? A banking crisis echoing the near-collapse of Silicon Valley Bank in 2023. Wait for it, his prediction - "Banking catastrophes awaiting Europe in the coming years!"
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Paolo Ardoino, the dashing leader of Tether, has issued a stark warning regarding the potential unintended consequences of European Union stablecoin regulations. Ardoino is mainly concerned about the impact these regulations may have on the broader European banking sector.
His apprehension centers on the vulnerability inherent in banks' reliance on fractional reserve systems. In these systems, banks do not keep all customer deposits in cash reserves; instead, only a portion is held. The rest is loaned out or invested, making the system fragile during periods of mass withdrawals or high redemption demands.
Ardoino paints a scenario of a 20% redemption wave, where banks would be €5.4 billion short. In such a case, stablecoin issuers, unable to meet these demands, could face solvency challenges. However, Ardoino emphasizes that bankruptcies would not be a result of issuers' misdeeds but the consequences of underlying banking system weaknesses.
EU MiCA RegulationThe MiCA regulation, which went into full force by the end of 2024, imposes stringent standards on stablecoin issuance and reserves. These rules aim to enhance the safety and reliability of stablecoins for users, but they may pressure banks to maintain adequate liquidity for potential redemption events.
- Despite the MiCA regulation aimed at enhancing stablecoin safety, Paolo Ardoino, Tether's CEO, questions its effectiveness in reducing risks, especially in light of the European banking system's fragility.
- Ardoino expresses concerns over the fractional reserve model used by European banks, which leaves only a fraction of deposits as cash reserves and potentially exposes them to crumbling under mass withdrawals or heavy redemption requests.
- In a scenario of a 20% redemption wave, institutions holding €6 billion in uninsured cash deposits might face instability, and smaller banks, with more risk, may struggle to meet these demands.
- If banks fail, Ardoino predicts that stablecoin issuers could follow suit, potentially leading to a banking crisis reminiscent of the near-collapse of Silicon Valley Bank in 2023.
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