Tether (USDT), an American dollar-pegged stablecoin is valued at over $65 Billion. USD Coin (USDC), another stablecoin that is backed by the U.S. Dollar, sits at $55 billion. Some reports estimate The market cap of all dollar-backed stablecoins totals more than $160 billion
Despite the success rate of dollar-based stablecoins it has yet to see a comparable size euro stablecoin. Circle, a U.S.-based company, announced that it will launch Euro Coin (EUROC) on the Ethereum blockchain. Uncomplicated euro transfers worldwide will now be possible with a stablecoin based on euro, just as it is for the U.S. dollars.
Circle decided to issue the euro stablecoin via Silvergate instead of its eurozone-based counterpart. Is it legal for a digital currency tied to the euro to not be issued in the eurozone? What will the European regulators do? Circle could ignore the Markets in Crypto-Assets Regulations, MiCA, and continue to operate the stablecoin in the European Union. Is there a major euro stablecoin left?
Cointelegraph auf Deutsch These questions were asked to Patrick Hansen. Up until recently, Hansen was the head of strategy at Unstoppable Finance and Bitkom’s former head of blockchain. Hansen now advises companies like Presight Capital, the Blockchain Founders Group, and has a hotline for the European Parliament.
Euro stablecoins issued outside the EU
The European Central Bank is not revealing when or if it will launch a digital Euro. However, it’s still not really clear to Patrick Hansen what exactly the ECB wants to achieve with a central bank-issued digital euro. “Whether it is to become a kind of digital cash or rather a new payment option. That’s why it’s so difficult to evaluate the project,” he said.
Hansen believes that private companies managed and overseen by policymakers are more able to bring about innovation in the financial system. According to him, European banks will be much more active in the coming years: “Right now, I think two things, in particular, are holding them back. First, banks want to wait for MiCA regulation, and second, the ECB’s specific plans for a digital euro are still not clear.”
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That’s why Hansen is a big fan of Circle’s decision to launch a euro stablecoin. Nearly 40% of global SWIFT payments are made in the euro, 20% of global foreign reserves and 0.2% of global stablecoin capitalization. “It is in the EU’s and the eurozone’s interest to change that. EUROC is a promising step in that direction,” Hansen said.
MiCA regulation is not to be avoided
In Hansen’s opinion, MiCA automatically kicks in here since it’s a euro stablecoin. Circle cannot avoid applying to the EU for the necessary licenses, and having the EUROC under supervision by EU authorities. But this is, Hansen thinks, also Circle’s intention.
Hansen claims that Circle will set up a European legal body and apply for an electronic money license. This license is required to issue e-money tokens. Depending on how widely the coin is adopted, EUROC already falls into the category of “Significant e-money-tokens” in the MiCA, which again entails higher capital reserves, liquidity and interoperability requirements.
“Circle could also theoretically use the liability umbrella of an existing e-money institution and cooperate with it. That would be a slightly more complex process operationally and legally,” Hansen explained, adding:
Circle’s euro stablecoin is supposed to be backed one-to-one by euros deposited in bank accounts. But, Silvergate in the United States holds the reserve while Circle is located in the United States. The MiCA regulation will regulate the new euro currency.
“In terms of USDC, Circle’s primary stablecoin pegged to the U.S. dollar, Circle could refrain from applying for a MiCA license. These pros and cons, such as the possibility that unregulated stablecoins might not be listed by regulated cryptocurrency trading venues in Europe, should be considered. However, I don’t see any way for EUROC to circumvent MiCA.”
Hansen says regulation can foster legal certainty, trust, and adoption but it can also create barriers to market entry. Hansen indicated that MiCA takes regulation to the extreme and can become a major obstacle for many businesses in the area stablecoins or nonfungible tokens.
Still no significant euro stablecoin
The role of regulated challenges, weakness in the euro and first-mover advantage for U.S. dollar stablecoins like USDT or USDC also plays a part. Many Europeans use USD stablecoins because of the significant network effects. Due to the volatility of crypto assets, many EU retail investors don’t worry about U.S. dollar use in the forex market. Hansen said:
Hansen believes there are many reasons why euro stablecoins have been less used. Reserve-backed stablecoin models have been rendered impossible by negative interest rates on eurozone bank deposits.
“Fundamentally, however, the demand for a widely used euro stablecoin is huge and many of the points above will get better in the coming months.”
The market will decide if the EUROC will be a major seller like the USDC. Hansen stated that there is a high demand from large financial institutions for a stablecoin euro approved by regulators and trustworthy.
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However, he is sure that euro stablecoins won’t be able to keep up with U.S. dollar stablecoins, stating the euro can’t do that even outside the crypto world for various reasons. Hansen added that those euro stablecoins who clear MiCA hurdles would see strong adoption, usage, and an increase in the overall market share for euro stablecoins.
“USDC is the undisputed number-one stablecoin in the decentralized finance market. There is good potential that EUROC could also play an important role in this market. Anyway, I would be happy to see more and more euro-based liquidity pools and euro investment opportunities in the DeFi space.”