Tether's decision to decline authorization under the EU's Markets in Crypto-Assets (MiCA) regulation centers on a reserve requirement that the company views as introducing unnecessary risk. CEO Paolo Ardoino stated that MiCA's mandate for significant stablecoin issuers to maintain at least 60% of reserves in commercial bank deposits drove the company's refusal to seek a license.
Under MiCA, e-money token issuers must hold a minimum of 30% of backing funds in deposits with credit institutions, with the threshold rising to 60% once a stablecoin achieves significant status. The remaining reserves can be held in secure and highly liquid assets. Ardoino has argued that concentration in commercial deposits creates counterparty risk rather than strengthening reserve safety, particularly given the potential for bank failures to disrupt stablecoin redemptions.
The 2023 collapse of Silicon Valley Bank underscored this concern. Circle disclosed that $3.3 billion backing USDC was held at the failed institution when regulators closed it, briefly intensifying questions about reserve access and stablecoin liquidity during banking disruptions.
Tether reported $184.6 billion in USDT outstanding as of the end of June, with reserves concentrated mainly in U.S. government-backed instruments and short-term liquidity facilities. The company reported assets exceeding liabilities by approximately $4.11 billion.
The European Central Bank and national central banks across the EU have now recommended removing fixed deposit thresholds from MiCA. They proposed instead that reserve requirements be based on liquidity metrics—specifically assets capable of maturing within one working day and five working days.
The central banks' recommendation reflects broader financial-stability concerns about stablecoin growth. They warned that expanding stablecoin issuance could alter the composition of funding held by European lenders, with stable retail deposits potentially replaced by larger, more volatile deposits from issuers. A widespread stablecoin redemption event could force rapid withdrawals of bank deposits, creating liquidity pressure on exposed financial institutions.
Any revision to MiCA would require the EU's regulatory process to amend the existing framework. The 30% and 60% deposit thresholds remain in effect, and Tether continues to operate without MiCA authorization for USDT.
