Circle reshuffles the cards of European stablecoins by unveiling the EUROC
Circlethe American company that is enjoying growing success with USDC, a dollar-backed stablecoin which we no longer present, recently announced the forthcoming release of EUROC, its first euro-backed stablecoin.
The news caused a stir, since currently, no European stablecoin really stands out. Some existing ones, like theEURt from Tetherthe EURL or the EUR, but it is the dollar-backed stablecoins that largely dominate the market.
As an example, the overall stablecoin market capitalization is approaching the $158 billion at the time of this writing. USDT and USDC, the two largest, alone represent over $122 billion market shares.
In comparison, theTether’s EURt is only $42 millionis a totally negligible part of the whole market, while the company is stablecoin leader with its dollar-backed USDT.
Also, the arrival of Circle on the European stablecoin market has started to really challenge the capacities of the European market to create its own stablecoin in order, finally, to be able to compete with its American counterpart.
👉 To understand everything about stablecoins
Our interview with the Adan
In order to better understand these issues and understand what the challenges of setting up a fully European stablecoin really are, here is our interview with Hugo Bordet of the Association for the Development of Digital Assets (Adan).
The American company Circle has just unveiled the Euro Coin, is it now too late for the creation of a digital euro account given the strike force of Circle? Is adoption likely to be hampered?
It is necessary, whether for players in the crypto-asset industry or policymakers within the European Central Bank (ECB), to understand the complementary role between private initiative stablecoins and Central Bank Digital Currencies (MNBC/CBDC) projects at the digital euro stage.
Stablecoins and the digital euro are unfairly compared and competed against while the latter do not absolutely not meet the same objectives :
- Stablecoins are currently mainly used to hedge against the risk of profit linked to certain protocol tokens (bitcoin, ether, etc.) or application tokens (AAVE, UNI, etc.) or to access services on finance protocols decentralized (collateral deposit, liquidity provision, etc.)
- As for the digital euro, it fits more into a logic of cashless society. In a non-exhaustive way, the e-euro aims to facilitate digital payments for relations between consumers / merchants on certain payment points (settlement points), make interbank transfers more fluid, facilitate financial inclusion and make scheduled payments (thanks to smart contracts and if the e-euro is issued on a block chain) while making transfers in euros less designated in terms of fees, faster, possibly peer-to-peer (like cash) and offline.
- In terms of timing: while stablecoins are already operational, with trading volumes valued at over $59 billion as of June 17, 2022the issuance of a digital euro is not expected before 2025. Europe cannot remain attentive to an MNBC by losing interest in euro stablecoins which in a way work for the monetary sovereignty of the euro zone in the crypto-asset industry.
Thus, it is not not too late to issue a digital eurobecause MNBC and stablecoins do not hold the same starting assumptions. On the other hand, the delay reached vis-à-vis China – on MNBC projects – and the United States – vis-à-vis stablecoin projects – oblige the European institutions not to drag.
While Adan (Association for the Development of Digital Assets) has been pointing out for more than a year the need for awareness by Europe the challenges posed by the digital euro and stablecoins to pay innovation, competitiveness and sovereignty of the European Unionthe eurozone is not fertile ground for the emergence of stablecoins backed by the euro and issued by (centralised) European players.
As such, the issuance of EUROC by Circle is not the first event attesting to a deep and persistent problem for the European digital asset industry: stablecoins backed by the euro whose volumes are relatively large are issued by companies across the Atlantic.
The best illustration is theEURTissued during the summer of 2021 by theAmerican company Tetherwhich is the first euro stablecoin in terms of capitalization.
However, out of the myriad of stablecoins available on the market, the EURT occupies only the 13th positionfar behind its dollar-backed counterpart USDT which takes the top spot in this ranking.
Stablecoins will benefit from a special status following the implementation of the MiCA regulations, isn’t this an obstacle to their development, and this in particular compared to their American competitors?
So far, stablecoin issuers (centralized at least, when it comes to decentralized projects the answer may vary) for the financial stability and monetary sovereignty of the European Union.
Many issuers specializing in stablecoins are effectively forced to “close their token supply” to certain exchanges, thereby limiting the capitalization and trading volume of the token and therefore its growth.
This is one of the reasons why 99% of available stablecoins are backed by the dollar.
The MiCA Regulation (Market in Crypto-Assets), presented in September 2020 by the European Commission, intends supervise issuers and service providers on crypto-assetsincluding stablecoins.
With regard to public offerings of stablecoins in Europe, their admission to trading platforms is strictly prohibited, unless the issuer is in accordance with the provisions of MiCA : legal personality, white paper, prudential requirements, ban on distributing interest, etc.
In addition, if the stablecoin is qualified as “significant” according to a list of established criteria, the issuer will have to submit to a set of additional rules to be authorized to distribute it.
These very heavy obligations and only applicable to European issuers – an American issuer can therefore perfectly issue a euro stablecoin without having to comply with MiCA – can limit the issuance of stablecoins in Europe.
In the context of the debates on MiCA within the European institutions, Adan to propose precisely the establishment of more proportionate rules for issuers of stablecoins, the dimensioning of the requirements for the entities depending on the size and maturity of their activities and granting the same exemptions does not benefit other financial intermediaries when crypto players apply the same conditions.
The MiCA project notably promises to protect buyers and increase the financial stability of the cryptocurrency market, but does this signal the end of decentralization?
The draft MiCA Regulation does not make sense to frame decentralized infrastructures, because it was designed for centralized players (i.e. those who have legal personality and a company or branch established within the EU). However, the wording still needs to be clarified to ensure the exclusion of DeFi from the scope of MiCA.
At this stage, the MiCA does not target decentralized stablecoins (issued by a core team of a protocol that delegates the governance of the token to a DAO) and only regulates backed stablecoins (i.e. to a single asset/currency – the “EMT” – either to a basket of assets/currencies – the “ART”), which effectively excludes algorithmic stablecoins.
Conclusion on the state of stablecoins in Europe
In sum, it is clear that the currently existing euro-backed stablecoins struggle to find interest with cryptocurrency holders.
However, with the arrival of Circle on the European market, things could well change, the firm having already proven its strategic mastery of stablecoinsin particular by extending the fields of application of its USDC (for example for companies), which could logically be defined as a model for EUROC.
In addition, for the time being, issuers of stablecoins across the Atlantic are not affected by all the measures provided by the MiCA regulationand therefore have, de facto, a clear advantage over potential European issuers.
Also, while a European MNBC is planned – at least – for 2025, the euro zone would have great interest in looking into the creation (or at least the promotion) of a European stablecoin, if she does not want to definitely let the check mark pass.
A fair solution would be a priori, as proposed by Adan, appropriate and proportionate regulations aimed at European stablecoin issuers so that they are able to compete with their non-European counterparts.
👉 To go further: MiCA and Europe regulations – What do the players in the sector think?