Circle Debuts Euro Stablecoin

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 play for leadership of the payments token business.

Circle’s dollar-pegged USD Coin (USDC) is the second largest stablecoin by market cap, with $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 rapidly increasing share of the stablecoin market once dominated by Tether’s USDT.

The company, which issues USDC in partnership with the parent of top U.S. crypto exchange Coinbase, is also making a big bet on the future of the blockchain-based stablecoin market in the EU, where the privately issued, volatility-free cryptocurrency payments tokens are viewed with more than a little hostility.

“The launch of Euro Coin aims to further Circle’s successful work in driving the frictionless exchange of financial value and bridging crypto-native and traditional 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 settle in minutes, and access crypto capital markets for trading, borrowing, lending and more.”

The Euro Coin, which will have the crypto exchange symbol EUROC, is a strong signal that Circle’s goal is to move stablecoins beyond their current function, which is largely reducing volatility risks when trading cryptocurrencies.

Growing Uses

A euro-denominated stablecoin would make it far easier for EU citizens to move liquidity on-chain, and could be used in the crypto trading world, where dollar-pegged coins currently fill the same reserve currency role that the U.S. dollar plays as the world’s reserve currency.

It would also decrease U.S. dominance of the stablecoin market — something U.S. congressional supporters of the dollar-pegged cryptocurrencies have argued is a reason to support them.

However, such a euro-pegged stablecoin would also be very useful as a broader payments 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, grabbing about 15% of the growing movement to spend cryptocurrencies, most notably bitcoin, in the real world, crypto payments technology firm BitPay’s CEO, Stephen Pair, told PYMNTS’ Karen Webster in February.

See more: Bitcoin’s Future as a Payments Tool Is Bright, Says BitPay CEO

There has also been interest in using stablecoins for cross-border transactions — notably remittances, as stablecoins share the benefits of bitcoin that include making very fast and very cheap transactions between countries.

Stablecoins have also seen growing interest because of their use in high-interest decentralized finance (DeFi) lending and staking platforms that offer yields 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 Turmoil Could Signal the End of Sky-High DeFi Returns

Eyes on EU

The EU and European Central Bank (ECB) have been hostile to the idea of stablecoins as a real-world means of payment since the idea arose with Meta’s ultimately unsuccessful Libra (later Diem) proposal in 2019, which would have let the social media giant’s 2.3 billion user send payments anywhere in almost real time — bypassing national fiat currencies along the way.

That latter part horrified central bankers, politicians and regulators, who foresaw the ability to fight inflation and control payments slipping out of their control. Much of the growing central bank digital currency (CBDC) push has been aimed at developing a nationally controlled alternative to stablecoins, particularly in the ECB’s support of a digital euro.

More here: EU Regulators Lash Out at Stablecoins While Boosting CBDCs

Beyond that, the ECB in February issued a legal opinion that it has control of the ability to launch stablecoins in the EU. In general, the central bank has been vehemently opposed to them.

ECB board member Fabio Panetta, who is the bank’s front man on cryptocurrency and stablecoin regulatory issues, has called stablecoins more risky than fiat. Pointing to the $45 billion collapse of the terraUSD stablecoin in May, he argued that they are more susceptible to runs.

Similar news: TerraUSD’s Price Collapse Shows Vulnerability of Dollar-Pegged Cryptos

Even when well regulated, stablecoins “are low-risk but not risk-free,” Panetta warned in December. “They are particularly vulnerable to possible runs in the event that holders experience a loss of faith.”

Additionally, he has said that existing e-money and real-time-payments solutions are a better solution.

You may enjoy: ECB’s Crypto Point Man: Real-Time Payments Can Blunt Stability Threat Posed by Digital Assets

At the same time, Panetta on Wednesday (June 15) said the ECB would limit a digital euro to $1.5 trillion in order to protect banks that fear disintermediation.

Taking on Tether

Circle has made very clear that the Euro Coin will be 100% backed by “euro-denominated” reserves — much like USDC, which is backed exclusively by dollars and short-term Treasuries. That has a twofold purpose.

While the first and biggest is addressing fears that Euro Coin would be vulnerable to a run, it also puts a spotlight on Tether’s USDT, which has been far less transparent about its reserve, which at one point was almost 50% commercial paper — a type of short-term treasury note.

See also: Is Tether Stablecoin Due for $80B Day of Reckoning?

Concerns about Tether’s ability to honor its commitment to redeem USDT on demand — which the company says is rock solid — has been expressed by the Treasury Department as well as within the industry.

While Tether’s USDT has been running slightly under par since the collapse of the terraUSD stablecoin in early March, USDC has been slightly over par. And when the No. 3 stablecoin imploded, billions of dollars was shifted from USDT to USDC.

EUROC would offer another access point from which to draw users away from Tether’s far more established USDT.

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