Bessie Liu

Coinbase, one of the largest centralized crypto exchanges in the world, is adding Circle’s euro-pegged stablecoin (EUROC) to its token roster.



<a href="https://blockworks.co/price/euroc">EUROC</a> is a stablecoin issued by Circle pegged one-to-one to the euro <a href="https://www.circle.com/en/euro-coin">through</a> overcollateralized euro-backed reserves.&nbsp;



Circle’s widely-used USD token (USDC) is the second-largest stablecoin in the world, first deployed by Centre, a <a href="https://www.circle.com/blog/coinbase-and-circle-co-found-the-centre-consortium">consortium</a> it co-founded with Coinbase in 2018.



The trading of EUROC on Coinbase will begin at 9 am PT on Feb. 22, pending liquidity conditions, Coinbase Assets <a href="https://twitter.com/CoinbaseAssets/status/1628077717596798986">tweeted</a>.&nbsp;



“Once sufficient supply of this asset is established, trading on our EUROC-USD and EUROC-EUR trading pairs will launch in phases,” the company said.



A Circle spokesperson <a href="https://blockworks.co/news/circles-euroc-stablecoin-will-trade-only-within-the-us-at-least-for-now">previously told</a> Blockworks that the stablecoin would adhere to “prudential standards” that apply to existing fintech and payments companies in the US including PayPal, Stripe, Square and Venmo.



EUROC’s market capitalization is still relatively low, at <a href="https://blockworks.co/price/euroc">$33.9 million</a>, compared to Tether’s EURT, which has a market capitalization of <a href="https://www.coingecko.com/en/coins/euro-tether/usd#:~:text=EURT%20to%20USD%20Chart,month%20(30%20days)%20ago.">$218 million</a>, per CoinGecko.



Coinbase’s EUROC will be tagged with an experimental label — ​​often given to tokens that are new to the Coinbase platform or have low trading volume. The issuance of the token may too, be restricted in a handful of jurisdictions.



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Circle Euro Stablecoin Finally Gets A Run On Coinbase

<div id="highlights-block_62c4a3a356a77" class="highlights">
 <ul>
 <li>Negative interest rates in the eurozone have led to fewer stablecoins being pegged to the euro, industry exec says</li>
 <li>US-headquartered Silvergate bank will be listed as the initial custodian of the token</li>
 </ul>
 
</div>



Cryptocurrency-focused peer-to-peer payment processor Circle is looking to build momentum behind its new euro-backed stablecoin.



The stablecoin, EUROC, launched June 30 as Circle’s second stablecoin — which falls more or less in line with the regulatory and security standards of the company’s more prevalent dollar-backed USD Coin (USDC). The company’s other products are mostly related to DeFi, including custodial solutions and lending.&nbsp;



US-headquartered Silvergate bank will be listed as the initial custodian of the token, and it will not be available to non-US customers until relevant licenses are obtained.



A Circle spokesperson told Blockworks the “prudential standards” for the new stablecoin will adhere to US “regulatory standards that apply to leading fintech and payments firms,” including PayPal, Stripe, Square and Venmo. 



<blockquote class="wp-block-quote">“Pursuant to our licenses, Circle will only solicit customers in the US,” the spokesperson said.</blockquote>



Stablecoins have been important financial infrastructure in the Web3 and DeFi (decentralized finance) space, and Circle’s EUROC marks the first pegged to the euro, the world’s second most-traded traditional finance currency.&nbsp;



It is likely that negative interest rates in Europe had been a large reason as to why so few stablecoins are pegged to the euro, Jonas Gross, head of digital assets and currencies at Etonec, told Blockworks.



“Fiat-backed euro stablecoins use the funds collected from users to invest in government bonds or to put this money in a bank account,” Gross said. “For both variants, interest rates have been negative for a long time. Thus, it was unprofitable to issue a fiat-backed euro stablecoin. As interest rates are generally increasing…the business model behind stablecoins becomes more promising.”



The status quo on rates — combined with the collapse of Terra stablecoin UST — triggered waves of uncertainty around stablecoin regulation in the European Union, including the Markets in Crypto Assets (MiCA) bill.



“Due to the regulatory uncertainty and the publication of MiCA in the EU (with specific regard to stable coins) multiple companies and startups in Europe are hesitant to build a stablecoin or Euro-pegged stablecoin in particular,” Maximilian Forster, co-founder and chief business officer of payments engine solution CashOnLedger, told Blockworks.



EU regulators recently <a href="https://cms.blockworks.co/eu-members-reach-agreement-on-mica/" target="_blank" rel="noreferrer noopener">reached an agreement</a> on MiCA which highlighted that large stablecoins will be subject to operational and prudential rules, and have a cap of 200 million euros in transactions per day.&nbsp;



European Parliament member Ernest Urtasun noted on <a href="https://twitter.com/ernesturtasun/status/1542591819980087297" target="_blank" rel="noreferrer noopener">Twitter</a> stablecoin reserves will have to be “legally and operationally segregated and insulated” and must be “fully protected in case of insolvency.”



Under MiCA guidelines, according to Forster, euro-backed stablecoins can only be traded on European grounds.



“Ultimately, the demand and critical mass will define the success and adoption rate of the EUROC,” Forster said.



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Circle’s EUROC Stablecoin Will Trade Only Within the US — at Least for Now

<div id="highlights-block_62b3337464a07" class="highlights">
 <ul>
 <li>The euro is the second-largest currency in the world, but has no major stablecoin nowadays</li>
 <li>Negative interest rates have held euro stablecoins back, but the ECB&#8217;s move to raise interest rates may accellerate adoption</li>
 </ul>
 
</div>



Stablecoins are predominantly US-dollar pegged projects, but the euro is coming for its slice of the pie. <a href="https://cms.blockworks.co/circles-new-euro-backed-stablecoin-mimics-usdc/" target="_blank" rel="noreferrer noopener">Circle’s announcement</a> of EUROC (Euro Coin) last week gave experts some confidence there will be a major euro-pegged stablecoin in the near future, even if it’s not clear when.&nbsp;



“So far we&#8217;re not seeing any euro stablecoin of relevance: very low liquidity and adoption,” Fabian Scholz, co-founder and CEO of Kudona, a German-based and Lithuanian-licensed cryptocurrency exchange, told Blockworks.&nbsp;



The euro, shared by 19 European Union member states, is the second-largest currency in the world, just behind the US dollar. Despite its global market share at around 19% across various indicators of international currency use, the euro has an insignificant representation in stablecoins.&nbsp;



While the crypto ecosystem has seen capital leaving in this bear market, dollar-pegged stablecoins managed to increase their dominance as investors looked for shelter in these turbulent weeks. Notwithstanding blowups like TerraUSD (UST), stablecoins are seen as a vehicle to park value without having to cash out to fiat currency, which often incurs fees.



Until now, only a few stablecoins have been pegged to the euro, such as Tether’s EURt — a sister stablecoin to the largest dollar-backed issue, USDT — or Stasis’ EURS. Far from the scale of dollar-pegged stablecoins, EURt has a market cap of roughly $218.4 million and EURS’ market cap sits around $130.1 million, <a href="https://www.coingecko.com/en/categories/stablecoins" target="_blank" rel="noreferrer noopener">according to CoinGecko</a>.



According to a <a href="https://www.ecb.europa.eu/pub/ire/html/ecb.ire202206~6f3ddeab26.en.html" target="_blank" rel="noreferrer noopener">report published last week</a> by the European Central Bank about the euro’s international role, the share of the euro in crypto markets is “extremely small,” at 0.2%. The Eurozone’s central bank recognizes that “stablecoins pegged to the euro have started to gain popularity, although the market remains in its infancy,” but warns that “stablecoins should not be regarded as a new class of safe asset but rather as a less volatile but risky cryptoasset.”



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/ZeeU744pYr9edsVZGb36OPo8j5G0yGn6s_MUMcMRmPwA1v2-AYmfDpBi40pGmQWBg-1kHhwjc15zSgzBcYOQyjiya64uVixWQ4fBy3TAuUhlHmpyHgM5zgK33Ye_N4JBKaLmGxkOed8bhv6QMw" alt=""/><figcaption>Source: ECB</figcaption></figure>



Nevertheless, Patrick Hansen, EU policy expert and Crypto Venture Advisor at Presight Capital, believes there is a rising demand for a stablecoin denominated in euro which makes up to 40% of global SWIFT payments and 20% of FX global reserves.&nbsp;



“A widely-used and liquid euro stablecoin can enable and improve a wide range of interesting use cases for European investors and businesses: from a more efficient on/off ramp to crypto/DeFi, to remittance and B2B payments, a frictionless crypto FX market and much more,” Hansen told Blockworks.&nbsp;



Kudona’s Scholz predicts that big crypto players such as Circle or Binance “might be able to change that, but they&#8217;ll need a couple of months if not two or three years of adoption to increase liquidity and adoption on the DeFi side.”&nbsp;



That would be a game-changer for European investors, as they are exposed to FX (foreign exchange) risks against the dollar. So far in 2022, the eurozone’s currency lost 11% of its value against the dollar, and some analysts predict the two currencies will reach parity later this year.



For the moment, euro-based stablecoins are less liquid and “tend to be sold similarly to other risky assets rather than behaving like a vehicle in digital transactions and trading,” according to the ECB’s research. At the same time, the institution admits that a euro stablecoin could support the currency&#8217;s international profile.&nbsp;



<h3 class="wp-block-heading">Monetary policy normalization may accelerate adoption</h3>



A crucial question for an issuer of a euro-based stablecoin lies exactly in ECB’s purview. With its deposit facility rate at -0.5%, the European Central Bank makes it difficult to maintain a euro-pegged stablecoin with full reserves as issuers have to pay negative interest on bank deposits.&nbsp;



<blockquote class="wp-block-quote">“Negative interest rates on bank deposits are amongst the most important barriers for the development and growth of reserve-backed, Euro-denominated stablecoins,” acknowledged Hansen.&nbsp;</blockquote>



In a <a href="https://twitter.com/paddi_hansen/status/1515694575226032135?s=20&amp;t=zOafA3Hwha_hdU43d4UtqA" target="_blank" rel="noreferrer noopener">tweet </a>in April, before Circle’s announcement, Hansen calculated that the company could have to pay €250 million in interest on its euro reserves locked at the bank if it created a euro-pegged stablecoin with a market cap of €50 billion.&nbsp;



On EUROC’s website, Circle addresses the issue: “Circle assumes the interest rate risk on Euro Coin reserves, just as we do with USDC,” the company wrote.



But negative rates are about to become a thing of the past. The ECB announced it will raise its benchmark interest rate in July as well as in September. The deposit facility will follow suit, leaving negative territory and making it easier to sustain large amounts of euro reserves at the bank.&nbsp;



“This will undoubtedly be a key change and enabler for Euro-stablecoin issuers,” predicts Hansen.&nbsp;



<h3 class="wp-block-heading">Will regulation hurt or benefit euro-pegged stablecoins?</h3>



The ECB’s rate hikes come at a crossroads moment for European regulation towards crypto. The European Union is <a href="https://cms.blockworks.co/eu-negotiators-want-to-hammer-out-crypto-bill-this-month/" target="_blank" rel="noreferrer noopener">close to reaching a deal</a> on Markets in Crypto-Assets (MiCA), a landmark law that will shape crypto innovation in the Old Continent.&nbsp;



“It will without any doubt have a considerable impact on the Euro-stablecoin market, and I don&#8217;t expect most Euro stablecoin issuers to be able to navigate the complex MiCA requirements to the EU&#8217;s supervisor&#8217;s satisfaction,” said Hansen, adding however that “those who do, will benefit from greater institutional trust and adoption.”&nbsp;



Market players are still waiting to see MiCA’s final version. “It&#8217;s not set in stone yet, so we need to see its final draft,” said Scholz, whose company will be affected by the regulation.&nbsp;



<blockquote class="wp-block-quote">“I&#8217;m a fan of regulation because the general idea is usually to protect the consumer, which is essential in finance.”&nbsp;</blockquote>



However, the devil might be in the details. “The question is then what kind of regulation do you have and how does it get implemented and affect businesses. If it&#8217;s well-thought-out, it allows for innovation to continue without being too constrained,” said Scholz, who not only shares a name with, but is in fact nephew to Germany’s chancellor Olaf Scholz.



Even the ECB, which is part of the financial supervisors in the eurozone, has its eye on a likely greater adoption of a euro stablecoin in the future.



“Potential risks triggered by more widespread stablecoin adoption can be managed through the existing Eurosystem’s oversight framework,” the ECB concludes, pointing to the expected MiCA regulation and international cooperation on the regulation of cryptoassets.



And in the meantime, as President Christine Lagarde <a href="https://twitter.com/paddi_hansen/status/1539284201052200963" target="_blank" rel="noreferrer noopener">recently said</a>, legislators may need to get to work on MiCA 2.0.



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Rising Rates Could be a Game-changer for Euro Stablecoins Like Circle’s EUROC

<div id="highlights-block_62ab5325f8168" class="highlights">
 <ul>
 <li>Euro stablecoins hold insignificant value in today’s crypto markets, where USD-pegged stablecoins dominate</li>
 <li>EUROC is expected to be supported by major cryptoasset custodians and DeFi protocols</li>
 </ul>
 
</div>



Europe is bidding adieu to negative interest rates — and a euro-backed stablecoin is vying to be a prime beneficiary.&nbsp;



Seizing the development in monetary policy, USDC’s issuer, Circle, announced Thursday a new euro-backed stablecoin called EUROC, modeled after the second-largest dollar-pegged stablecoin, which currently has a market cap of $54.4 billion.&nbsp;



The plan is for Euro Coin to be backed 100% by euro-denominated reserves held in Silvergate Bank, regulated in North America, so it is redeemable 1:1 for euros. The reserves will grow based on supply and demand.&nbsp;



“Euro Coin expands opportunities for payments, on-chain FX, trade finance, commerce, and broader digital asset markets use-cases. The launch is symbolic of a shift in crypto markets towards greater and greater utility value from blockchain infrastructure,” Circle’s co-founder and CEO, Jeremy Allaire, <a href="https://twitter.com/jerallaire/status/1537421741521309696" target="_blank" rel="noreferrer noopener">wrote</a> in a tweet.&nbsp;



The euro, shared by 19 European Union member states, is the second-largest currency in the world, just behind the US dollar, but has an insignificant representation in stablecoins. So far in 2022, the eurozone’s currency lost 11% of its value against the dollar, and some analysts predict the two currencies will reach parity later this year.



Until now, only a few stablecoins are pegged to the euro, such as Tether’s EURt — a sister stablecoin to the largest dollar-backed issue, USDT — or Stasis’ EURS. Far from the scale of dollar-pegged stablecoins, EURt has a market cap of roughly $216.1 million and EURS’ market cap sits around $130 million, <a href="https://www.coingecko.com/en/categories/stablecoins" target="_blank" rel="noreferrer noopener">according to CoinGecko</a>.



Asked whether the launch is linked to the European Central Bank&#8217;s decision to raise the benchmark interest rate in July and September out of negative territory, a Circle spokesperson told Blockworks that the company “builds for the long term.”



<blockquote class="wp-block-quote">“There is a clear need for a credible, sound, and regulated euro-backed stablecoin to play a role in the future of finance,” the spokesperson said.</blockquote>



However, <a href="https://www.circle.com/en/euro-coin" target="_blank" rel="noreferrer noopener">on EUROC’s website</a>, Circles addresses the issue: “How do negative eurozone interest rates impact Euro Coin? Circle assumes the interest rate risk on Euro Coin reserves, just as we do with USDC,” the company says.&nbsp;



The new token will be available for everyone June 30. EUROC will launch on the Ethereum blockchain as an ERC-20 standard token — additional blockchains will be added later this year. USDC similarly began on Ethereum and has since <a href="https://www.circle.com/en/multichain-usdc" target="_blank" rel="noreferrer noopener">expanded</a> to eight other chains.



“A number of ecosystem leaders will support Euro Coin at launch, including Anchorage Digital, Binance.US, Bitstamp, Compound, Curve, CYBAVO, DFX, Fireblocks, FTX, Huobi Global, Ledger, MetaMask Institutional, and Uniswap Protocol,” the statement said.&nbsp;



EUROC reserves will be audited and attested monthly by Grant Thornton, a US independent auditor, starting in July.



Asked whether the stablecoin will be compliant with future European regulation once <a href="https://cms.blockworks.co/eu-negotiators-want-to-hammer-out-crypto-bill-this-month/" target="_blank" rel="noreferrer noopener">MiCA (Markets in Crypto-Assets)</a> framework is approved by the EU, a Circle spokesperson responded, saying that EUROC will be initially issued “within the US regulatory perimeter, with euro-denominated reserves held by US-regulated financial institutions.”



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