With Circle’s announcement today of a new euro-denominated stablecoin called Euro Coin, the second-largest issuer of dollar-pegged cryptocurrencies is making a bid for leadership in the payment token business.
Circle’s dollar-pegged USD coin (USDC) is the second-largest stablecoin by market cap, at $54.5 billion, second only to Tether’s $80 billion USDC. But having grown from $21 billion at the beginning of last year, USDC is taking a growing share of the stablecoin market once dominated by Tether’s USDT.
The company, which issues USDC in partnership with the parent company of leading US cryptocurrency exchange Coinbase, is also making a big bet on the future of the blockchain-based stablecoin market in the EU, where tokens Privately issued, volatility-free cryptocurrency payment systems are viewed with more than a little hostility.
“The launch of Euro Coin is intended to further Circle’s successful work in driving the frictionless exchange of financial value and bridging traditional and crypto-native financial services,” Circle CEO Jeremy Allaire said in a statement. “Businesses can use EUROC tokens to easily move euro liquidity on-chain, accept and make euro payments globally that can be settled in minutes, and access crypto capital markets to trade, borrow, lend, and more.”
The euro coin, which will bear the crypto exchange symbol EUROC, is a strong signal that Circle’s goal is to take stablecoins beyond their current role, greatly reducing volatility risks when trading. cryptocurrencies.
A euro-denominated stablecoin would make it much easier for EU citizens to move liquidity on-chain, and could be used in the world of cryptocurrency trading, where dollar-pegged currencies currently serve the same role as reserve currency as the US dollar plays as world currency. reserve currency.
It would also lessen US dominance in the stablecoin market, something supporters of dollar-pegged cryptocurrencies in the US Congress have argued is a reason to support them.
However, such a euro-pegged stablecoin would also be very useful as a broader payment currency, either facilitating payments and transactions made with cryptocurrencies or as a medium of exchange on its own.
Stablecoins are already making their way into retail merchant payments, capturing about 15% of the growing movement to spend cryptocurrencies, especially bitcoin, in the real world, said CEO of crypto payments technology firm BitPay, Stephen Pair, to Karen Webster of PYMNTS in February.
See more: Bitcoin’s future as a payment tool is bright, says BitPay CEO
There has also been interest in using stablecoins for cross-border transactions, especially remittances, as stablecoins share the benefits of bitcoin which include very fast and very cheap transactions between countries.
Stablecoins have also seen growing interest due to their use in high-interest decentralized finance (DeFi) lending and staking platforms that offer returns ranging from 2% to more than 20%. They are a fast-growing segment of DeFi and now centralized finance (CeFi) protocols.
Also Read: Latest Crypto Turbulence Could Signal The End Of Soaring DeFi Returns
Eyes on the EU
The EU and the European Central Bank (ECB) have been hostile to the idea of stablecoins as a real-world means of payment ever since the idea came about with Meta’s Libra (later Diem) proposal, which ultimately fell through in 2019. , which would have allowed the social media giant’s 2.3 billion users to send payments anywhere in near real time, bypassing national fiat currencies along the way.
That last part horrified central bankers, politicians and regulators, who foresaw that the ability to fight inflation and control payments was slipping out of their hands. Much of the growing push for central bank digital currency (CBDC) has been aimed at developing a nationally controlled alternative to stablecoins, particularly in the ECB’s support for a digital euro.
More Here: EU Regulators Blast Stablecoins While Pushing CBDCs
Beyond that, the ECB in February issued a legal opinion that it is in control of the ability to launch stablecoins in the EU. In general, the central bank has vehemently opposed them.
ECB board member Fabio Panetta, who is the bank’s lead on cryptocurrency and stablecoin regulatory issues, has said that stablecoins are riskier than fiat. Pointing to the $45 billion collapse of the terraUSD stablecoin in May, he argued that they are more susceptible to runs.
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Even when well-regulated, stablecoins “are low-risk but not risk-free,” Panetta warned in December. “They are particularly vulnerable to potential runs should incumbents experience a loss of faith.”
Furthermore, he has said that existing real-time payment and e-money solutions are a better solution.
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At the same time, Panetta said on Wednesday (June 15) that the ECB would cap a digital euro at $1.5 trillion to protect banks that fear disintermediation.
Taking on Tether
Circle has made it very clear that the euro currency will be backed 100% by “euro-denominated” reserves, just like USDC, which is backed exclusively by dollars and short-dated treasuries. That has a dual purpose.
While the first and largest addresses fears that Euro Coin would be vulnerable to a run, it also highlights Tether’s USDT, which has been much less transparent about its holdings, which at one point was almost 50% paper. commercial, a type of short-term treasury note.
See Also: Is Tether Stablecoin Expiring On Doomsday For $80 Billion?
Both the Treasury Department and within the industry have raised concerns about Tether’s ability to meet its commitment to redeem USDT on demand, which the company says is rock solid.
While Tether USDT has been running slightly below par since the collapse of the terraUSD stablecoin in early March, USDC has been slightly above par. And when stablecoin No. 3 imploded, billions of dollars were transferred from USDT to USDC.
EUROC would offer another access point from which to steer users of the much more established USDT away from Tether.
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