The market capitalization of Tether (USDT), a USD-pegged stablecoin, currently exceeds $65 billion. USD Coin (USDC), another USD-backed stablecoin, is worth around $55 billion. Some reports evaluate that the total market capitalization of dollar-backed stablecoins is over $160 billion.

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Despite the success of dollar stablecoins, there has not yet been a Euro stablecoin even remotely comparable in size. By the end of June, American company Circle announced that it would be launching its own euro stablecoin, the Euro Coin (EUROC), on the Ethereum blockchain. With a stablecoin based on the euro, easy transfers in euros around the world will be possible in the future, as is currently the case with the US dollar.

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Instead of doing business in the eurozone, Circle decided to issue a planned euro stablecoin through US bank Silvergate. But is it legal to issue a digital coin pegged to the euro outside the eurozone? How will European regulators react? Can Circle simply ignore the upcoming regulation of the Crypto Asset Markets (MiCA) and operate a stablecoin outside of the European Union? And why is there still no major stablecoin for the euro?

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“cointelegraph” in German asked these questions to Patrick Hansen. The former head of blockchain at the German digital association Bitkom was until recently the head of strategy and business development at wallet provider Unstoppable Finance. Hansen now advises companies such as Presight Capital and Blockchain Founders Group and has a hotline to contact the European Parliament.

Euro stablecoin issued outside the EU

The European Central Bank (ECB) is leaving options open as to whether and when to launch a digital euro. However, Patrick Hansen is still not entirely clear what exactly the ECB wants to achieve with a central bank-issued digital euro. “Will it become a kind of digital cash or rather a new payment method. That is why it is so difficult to evaluate the project,” he said.

Essentially, however, Hansen believes that private companies, led and controlled by politicians, are better suited to innovate the current financial system. According to him, European banks will be much more active in the coming years: “Now I think that they are holding back, in particular, two things. Firstly, banks want to wait for MiCA regulation, and secondly, the specific plans of the ECB for the digital euro are still not clear.”

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That’s why Hansen is a big fan of Circle’s decision to launch a euro stablecoin. The euro accounts for almost 40% of global SWIFT payments, 20% of global foreign exchange reserves, but only 0.2% of the global stablecoin market capitalization. “It is in the interests of the EU and the eurozone to change this. EUROC is a promising step in this direction,” said Hansen.

MiCA regulation inevitable

According to Hansen, MiCA automatically steps in because it is a stablecoin for the euro. Circle cannot apply for the appropriate licenses in the EU and control EUROC by the EU authorities. But this, according to Hansen, is also Circle’s intention.

Circle is likely to create a European legal entity and then apply for an e-money license, a prerequisite for issuing e-money tokens, Hansen said. Depending on how widely accepted the coin is, EUROC already falls into the category of “meaningful e-money tokens” in MiCA, which again entails higher requirements for capital reserves, liquidity and compatibility.

“Theoretically, Circle could also use the umbrella of responsibility of an existing e-money institution and cooperate with it. It would be a slightly more complex process operationally and legally,” Hansen explained, adding:

The Euro stablecoin Circle is expected to be backed one-for-one with euros deposited in bank accounts. However, the reserves are held at the American bank Silvergate, and Circle itself is based in the United States. How then can the new euro coin be subject to the upcoming MiCA regulation?

“With regard to USDC, Circle’s main USD-pegged stablecoin, Circle may refrain from applying for a MiCA license. Here it is necessary to weigh the pros and cons of, for example, the fact that unregulated stablecoins can no longer be registered on regulated cryptocurrency trading floors in the EU. However, I see no way for EUROC to bypass MiCA.”

According to Hansen, regulation can promote legal certainty, trust and acceptance, but on the other hand, it can create high barriers to market entry. In the area of ​​stablecoins and non-fungible tokens (NFTs), MiCA goes too far and threatens to be a major setback for many companies, Hansen says.

Still No Significant Euro Stablecoin

Adjustable issues, weakness in the euro, and early adopter advantage of US dollar-based stablecoins such as USDT and USDC also play a role. The network effects of stablecoins are so significant that many Europeans also use USD stablecoins for convenience. In addition, the volatility of crypto assets is usually high, and many EU retail investors are relatively unconcerned about the risk of using the US dollar in the forex market. Hansen said:

The existing euro stablecoins seem to be used less, and there are several reasons for this, according to Hansen. Negative interest rates on bank deposits in the euro area have made business models of backed-up stablecoins nearly impossible.

“However, fundamentally, the demand for the widely used euro stablecoin is huge, and many of the points above will improve in the coming months.”

Whether EUROC becomes a big seller like USDC will be up to the market to decide. Demand for a reliable and regulatory-approved euro stablecoin is high, Hansen said, especially from large financial institutions.

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However, he is confident that the euro stablecoins will not be able to keep up with the US dollar stablecoins, stating that the euro cannot do so even outside the crypto world for various reasons. But those euro stablecoins that overcome the MiCA hurdles will gain widespread adoption and use while increasing the overall euro stablecoin market share, Hansen said, adding:

“USDC is the undisputed number one stablecoin in the decentralized finance market. Therefore, it is highly likely that EUROC will also play a good role here. In any case, I would be happy to see more and more euro-based liquidity pools and euro investment opportunities in the DeFi space.”