Are negative interest rates the reason for the missing euro stablecoin?

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There are many stablecoins that promise to be a digital version of the U.S. dollar, but few stablecoins are trying to mimic the euro.

According to Jonas Gross of Etonec, this is because interest rates are negative almost everywhere in Europe.

Still, stablecoin company Circle is daring to launch a euro stablecoin, but it will only be available in the US at the moment.

USDC Vs EUROC

If the name Circle doesn’t ring a bell, you’ve probably come across their stablecoin USDC.

It has been in circulation for years and is the most popular stablecoin on the crypto market after USDT from Tether. The euro is currently at its lowest point in 20 years against the dollar. This means that from a European perspective, it is valuable to exchange euros for USDC.

Below is the rate of USDC expressed in euros. Since the beginning of 2021, the value has increased so much that it seems a matter of time before one dollar-stablecoin is worth one euro.

Are negative interest rates the reason for the missing euro stablecoin?

Only in United States – for now

On June 30, Circle launched their Euro Coin EUROC. The US bank Silvergate manages the Euro deposits needed to give the stablecoin the same value at all times. After all, users must be able to exchange their EUROC for real euros at all times.

For now, EUROC seems to be available only to a niche audience as Circle does not yet offer the coin outside the US. For this, all relevant licenses must first be in.

This distinguishes Circle from, for example, Tether and the ”fallen” Terra. They profile themselves as the good boy of the class and will not do anything if they do not have legal approval.

“Circle will not directly approach customers outside the United States until it has the relevant licenses in those jurisdictions”

Circle’s website states read that the standards for the new stablecoin will meet U.S. regulatory standards applicable to large fintech and payment companies such as PayPal, Stripe, Square and Vemo.

Negative interest rate reason for euro stablecoin failure to take off

If you scroll through Coinmarketcap, on the first page you will find a number of stablecoins, but these are all based on the dollar. It is likely that negative interest rates in Europe were a major reason why so few stablecoins are linked to the euro, said Jonas Gross, head of digital assets and currency at Etonec.

“Fiat-backed euro stablecoins use the money raised from users to invest in government bonds or to put this money into a bank account,” Gross said.

“For both variants, interest rates have been negative for a long time. So it was not profitable to issue a fiat-backed stable euro currency. As interest rates rise over, the business model behind stablecoins becomes more promising.”

Jonas Gross, Head of digital assets and currency, Etonec

European regulation

In addition, our European parliament is also not the most clear. They have not yet taken an official position on stablecoins and released guidelines for member states on this.

According to Maximilian Forster of CashOnLedger, this uncertainty is causing the lack of a euro stablecoin:

“Due to the regulatory uncertainty and the publication of MiCA in the EU, several companies and startups in Europe are hesitating to build a stablecoin or in particular Euro-pegged stablecoin.”

EU regulators did recently reach an agreement on MiCA (starting in 2024), which emphasized that large stablecoins will be subject to strict and a limit of 200 million euros of transactions per day.

MEP Ernest Urtasun noted on Twitter that stablecoin reserves should be “legally and operationally separated and isolated” and “fully protected in the event of insolvency.”

Back to USDC and the stablecoin market. With the fall of Terra and the problems at Celsius, 3AC and BlockFi, there were questions about whether Circle’s dollar reserves were sufficient.

Does Circle have enough reserves?

Jeremy Allaire, CEO of Circle, provided clarity on Twitter. He said it was “understandable why some users would be paranoid,” noting that Circle was well equipped to weather the current storm and resist attempts to destabilize USDC.

“Circle is in the strongest position financially ever and we will continue to increase our transparency,” Allaire wrote.

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