The ECB delivers a bond purchase program to Circle

Euro stablecoins like Tether or Celo have so far been classified as irrelevant. The stablecoin sector is firmly in the hands of US dollar stablecoins, which account for more than 95 percent of the total market. Above all, players like Tether, Circle, Binance or Paxos dominate the market here. This could now change with Circle’s Euro stablecoin.

Because the EUROC, based on euro coins, can bring a new level of trust and protocol coverage to the market. This is due to the fact that conservative hedging, such as that used by Circle with EUROC, has so far not been economical. Yet this is exactly what will change when key euro interest rates rise above zero. Companies can now issue fully backed euro stablecoins without having to pay negative interest.

Huge advantages through Euro Stablecoin

Until now, cryptocurrency investors and traders have generally relied on cashing out on US dollar stablecoins. Anyone holding tokenized eurozone fiat money, which probably applies to the majority of all active cryptocurrency traders, has so far been exposed to exchange rate risk.

As a result, blockchain applications, and DeFi applications in particular, should benefit from establishing a stable euro currency that lowers barriers for people in the eurozone. Companies with a strong import and export business outside the SEPA area could also benefit from direct payment processing.

The ECB delivers purchase program to Circle

Additional foreign demand could benefit the euro itself. Meanwhile, not several billion, but several trillions of US dollars are delivered in the stablecoin sector, mainly through Tether USDT and Circle USDC.

As the second largest currency in the world, the euro could gain more market share in the forex sector through a digital token derivative. The ECB would benefit from a strong and fully backed stable euro currency. After all, it would have an additional buyer of euro government bonds. Especially since they have to reduce their purchases of government bonds due to high inflation. To put it bluntly, Italian government bond yields also depend on a possible success of the EUROC.

Uncle Sam takes control!

A certain irony cannot be avoided. An American company (Circle) is using an American bank (Silvergate) to make sure the world receives a promising digital euro, because once again Europe cannot do it by itself. Also, since the Internet economy is already in the hands of American companies thanks to Google, Amazon and Meta, why not our money too? After all, our data is already stored in the US cloud. With EUROC, Web 3.0 takes another big step across the Atlantic.

Is it really that bad in the EU?

The above formulations can be classified as exaggerated. However, there is a risk that excessive regulation in the EU makes the scenario described more realistic than expected. Blockchain professor Philipp Sandner from the Frankfurt School of Finance and Management had already pointed out the dangers of MiCA overregulation in an article. Other regulatory experts such as Patrick Hansen (formerly Bitkom eV, today Unstoppable Finance) also express concern that the hurdles for euro stablecoins in the EU are too high.

Whether Circle’s EUROC will meet MiCA requirements remains to be seen. Finally, crypto regulation has yet to be passed in the EU. An important element of uncertainty for any company in the cryptocurrency sector.

Digital Euro only for non-EU residents

If the MiCA euro stablecoin is not approved in the EU, then EU-licensed service providers should also not be able to offer it to their customers. So if you want to take advantage of a reliable Euro stablecoin, you would have to switch to non-European service providers. The exact opposite of sensible regulation.

In this case, innovation and value creation would take place outside European borders. A Swiss, British or American crypto trader could use EUROC accordingly, while Europeans have to resort to USD stablecoins unless they want to switch to foreign service providers.

Dai stablecoins with bad odds

But even if Circle receives EU approval for its EUROC, this does not necessarily mean that other, more decentralized projects will also receive approval. DeFi projects like MakerDAO with Dai are likely to have even worse cards than the highly regulated and centralized Circle with Goldman Sachs and Blockrock in the background.

Hopefully the MiCA regulation will not prevent either a EUROC or a Dai from MakerDAO. If it does, it would be a clear signal that Europe is once again breaking out of the Web 3.0 circle.