Tether Ditches EU License Bid Amid Reserve Requirements Row

Tether has abandoned its bid for an EU license due to regulatory requirements embedded in the European Union's crypto asset regulation, MiCA. Paolo Ardoino, CEO of Tether, cited reserve requirements that are incompatible with the company's management methods.

MiCA requires major stablecoin issuers to hold at least 60% of their reserves in ordinary bank deposits. However, Tether argued that depositing billions of dollars in cash at commercial banks would expose token holders' reserves to risk due to Europe's limited deposit insurance coverage of €100,000 ($110,000) per account.

This decision comes as central bank officials from the ECB and all 27 EU member states have voiced opposition to the provision. They argue that if crypto markets shift abruptly and users rush to redeem tokens for cash, stablecoin issuers would need to withdraw enormous sums from commercial banks overnight, posing significant risk to local banks.

The central banks proposed instead requiring token issuers to hold liquid assets payable within one to five days. Interestingly, Tether and the central banks reached the same conclusion for entirely different reasons.