Stablecoins are one of the most important parts of the cryptocurrency industry. For years now the stablecoins have gained not only in popularity, but also in use cases, number of trading pairs, companies and platforms offering these services or in their types.
However, cases such as those of TerraUSD (UST) undermine the stance of stablecoins. Many believe that due to what happened to Luna and UST , stablecoins are an example of why crypto is bound to fail. However, if done properly, stablecoins have potential to help many traders, investors and crypto enthusiasts to hedge their risks, realise profits or help with purchases and payments . And that is something that a new stablecoin by Circle Internet Financial is supposed to do.
Circle , the issuer of the second biggest stablecoin, USD Coin (USDC), will issue its own stablecoin that will be 100% backed by euro in cash and euro government debt only. The Euro Coin (EUROC) will be pegged 1:1 to euro and will thus be redeemable for euros. Thanks to this, Circle wants to bring stability to Europe and financial and cryptocurrency markets in the old continent.
These euro-denominated reserves will be held on the US soil and will be watched under US regulatory perimeter. It seems that the first company to be holding the reserves for Circle will be San Diego-based, cryptocurrency friendly company, Silvergate Bank.
Moreover, this stablecoin should give businesses wider access to euro liquidity. Thus, EUROC can be used for payments, trading, borrowing and lending . During the launch, which is expected to be on 30 th of June, the first version of EUROC will be released on Ethereum as an ERC-20 token. It is expected that issuance of EUROC on different blockchains and under different standards will follow.
As of now, different companies have expressed their support for the upcoming stablecoin. These include companies such as Binance.US, Bitstamp, FTX , Huobi Global, Ledger, Anchorage Digital or MetaMask Institutional. Moreover, the developers are already able to integrate Euro Coin smart contracts even ahead of official launch.
“There is clear market demand for digital currency denominated in euros, the world’s second most traded currency after the US dollar.”
That is the statement of Jeremy Allaire, Co-founder and CEO of Circle. Allaire believes that thanks to the Euro Coin and USD Coin , Circle will be helping to unlock a new era of value exchange around the globe that is fast, inexpensive, secure and interoperable.
While in the fiat terms, euro-denominated stablecoins are the second most popular stablecoins, right after the dollar-denominated stablecoins, the volumes are incomparable. The dollar stablecoins such as Tether, Binance USD or the Circle’s USD Coin are very popular. On the other hand, the euro-denominated stablecoins such as EURt, issued by Tether or EURS, issued by Status, are far from well-known.
As of last week, the euro-denominated stablecoins were all worth about 130 million dollars , while the dollar-denominated part of stablecoins is worth over 155 billion dollars , being over thousand bigger times. This gap can be diminished by the Circle-issued Euro Coin, since it is already in charge of USDC, a stablecoin worth over 55 billion dollars and the fourth biggest cryptocurrency.
However, this also means that until now, the European Union and the financial regulators in Europe overall did not need to pay that much attention to euro-denominated stablecoins. But with such a big player like Circle entering the euro stablecoins arena, the regulators will need to take the stablecoins much more seriously. Especially, since the reserves will be held in the United States under the jurisdiction and supervision of the local financial regulators.
As of now, the European Central Bank (ECB) has not issued any statements connected to this news, however, it is expected that they will do so soon. This is for instance because the EU’s legislation, Markets in Crypto-assets (MiCA) should also be approved and implemented in the near future.
If that happens it will be very interesting to see what happens with EUROC or other stablecoins. It is clear that as the situation is, the MiCA legislation opposes the EUROC in many instances:
“No person or legal entity shall offer asset-referenced tokens within the Union to the public, or seek an admission of such assets to trading on a trading platform for crypto-assets in the Union, unless the issuers of such asset-referenced tokens have been authorised to do so in accordance with Article 19 by the competent authority of their home Member State. Only legal entities that are established in the Union shall be granted an authorisation.”
With the coming CBDC (central bank digital currency) that the Eurozone is planning, it is expected that the regulators will not be pleased with this step by Circle . Moreover, it can only strengthen the case for support of the digital euro, which means that more politicians might be inclined to vote in favour of CBDC and try to ban or illegalise the stablecoins such as Euro Coin.
While at the first glance the Euro Coin might be of an extreme help to European traders and investors, in the long term, it can significantly affect the decisions on topics such as CBDC, its privacy, usability, distribution or issuance. Therefore, the EUROC will definitely have an impact on several fronts.
Without a doubt, EUROC has the potential to become the most interesting euro-denominated stablecoin in the crypto industry, since the competition is very weak and Circle has impeccable experience with stablecoin issuance. It, however, needs to be pointed out that the EU might issue have problems with a setup, where an American firm regulated on US soil issues a stablecoin in Europe. This will be very important not only from the cryptocurrency standpoint, but also from the possible CBDC standpoint in the near future.
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