Why Paolo Ardoino and Tether simply don't care about MiCA
THIS is a slight revisit to a theme, but prompted by an interview that Paolo Ardoino, CEO of Tether, gave very recently.
I know that my fellow writer Eric Williamson produced a masterly exposition here recently, but hopefully this might stimulate a few additional brain cells.
I have no idea how many accounts Bank of America has for example, but there was an advertisement on the telly recently for Chase – which trumpeted the fact that they had 53 million accounts. Impressive – no?
Well, Tether added 60 million new holders within the last three months and currently has more than 400 million account holders. Now that IS impressive.
Ardoino has recently visited America to help the SEC legislate for stablecoins. One of his key statements is he doesn’t believe stable coin backing-assets should be in cash held in banks. He makes the point Circle had $3.5biillion in Silicon Valley Bank, (SVB) and its demise might have destroyed them. Fortunately, the US FED stepped in and made depositors whole.
His main point was that Tether was being used by millions of people who were basically unbanked. In his view there might be one billion people worldwide with access to banks, credit cards and the like but there were 3.5 billion without such (basic if you will) necessities. Tether filled that gap. In addition, Tether particularly helped people in countries with weak currencies (he quoted the Turkish Lire which has fallen 90% plus in just a few years). Holding Tether protected against such falls.
His point about MICA is straightforward. If you put cash in a bank they use it to lend to people – usually leaving a 10% margin but as we know sometimes banks only leave 2 or 3% margin. Suppose you have cash on hand as a stablecoin and you have to deposit 60% in cash into banks (which is what MICA mandates).
The big banks don’t want crypto money in general, which means you are forced to go to smaller banks and ordinary prudence would mean you have to have quite a few to cover risk and bank compliance.
The problem comes when Mr Stablecoin has to get his cash back. He pops over to one of the banks and says can I have my $1b back NOW, this instant, please, and the bank – having lent 90% - only has $100million instantly available and probably has to go and borrow on the interbank market to find the rest. Which instantly puts red flags everywhere (regulators, other banks, markets you name it) and within another five minutes the bank is bust and the central bank has walked in to “rescue” it. If it’s like it was in Cyprus it’s called ravage rather than rescue. Remember, banks don’t go broke because their customers do. They go broke when people want their money back.
He pointed out, quite rightly, when SVB when down Tether got hit with $17b of redemptions. They had about $3bn in actual cash, and they quickly sold US Treasuries for the rest. Within less than two hours everyone got what they wanted, which, as you might guess, meant people stopped worrying and began buying it again.
MICA means USDC can only do $200m a day in Europe. A mere fleabite. Tether was doing more than $10billion a day in Europe before MICA. Europe has well and truly shot itself in the foot here.
Ardoino’s point is he has 400 million customers to worry about who collectively have around $130-140 billion – their total market cap just breached $150 billion. That would mean banks would have to hold about $80billion spread everywhere. Too much oversight, risk, compliance and everything else you can think of.
So, he isn’t going to get a MICA licence. As he generously says, he doesn’t care if anyone else does, it doesn’t bother him. He has licences that give him freedom in lots of places.
Moving on, and in a slight aside, it would appear Ripple Labs and the SEC have come to an agreement. Ripple will pay $50m of the $125m levied on it previously. So that is a distinct win. It doesn’t at this point look as if there are strings attached but that might change when the Judge gets her hands on it. Don’t forget she DID say that some of the XRP sold was as a security so maybe there is a bit to go yet.
And to finish off, here’s why Nassim Taleb’s Black Swans are so profitable. Cardinal Prevost on Polymarkets (that which had Trump winning etc etc etc) had literally zero chance to become Pope. And then he won. Zero to 100 in an instant. I don’t yet know if anyone had money on him but I think you can see you don’t need to get many of these right to make a fortune. For all I know Taleb just might have done.
