Circle Launches EUROC Setting the Stage for the Digital Euro

euro coin surrounded by EU flag

Circle’s recent release of EUROC as well as Tether’s fiat-pegged stablecoin called GBPT, opens up a new avenue for the overall crypto space. 

The new fiat-currency stablecoins provide a solution for users in countries with limited access to dollars due to capital controls or sanctions. They’ll also unlock many new opportunities for multi-currency digital banking and foreign exchanges. 

Let’s see exactly how.

What are Fiat- Currency Pegged Stablecoins

USDC, EUROC, or GBPT are all part of fiat-collateralized stablecoins. They maintain a reserve of a sovereign currency (or currencies), controlled by independent custodians and regularly audited.   Currency reserves is what keeps the stability of these stablecoins; if you create a stablecoin pegged against the dollar, you can keep the same amount of dollars in a vault. 

Stablecoins’ original purpose was to give cryptocurrency traders access to liquidity if they had to deal with banking restrictions on digital assets.  Yet, stablecoins’ utility has gone beyond overcoming these restrictions. People without a bank account or who don’t use traditional banking transactions can now rely on stablecoins. 

Their utility led to an increasing market capitalization that rose from $5.7 billion in late 2019 to more than $150 billion currently.

Source: CoinMarketCap

Until now, Tether (USDT) and TrueUSD (TUSD) –  stablecoins backed by U.S. dollar reserves and denominated at parity to the dollar have been the most popular.  We’ll see if EUROC will bring a change to this situation. 

Circle’s Euro-Backed Stablecoin

Euro Coin went officially live on Ethereum on June 30 as an ERC-20 standard token, but it will likely expand to other blockchains by the end of the year.  You can now simply withdraw EUROC from exchanges and put it in Ethereum-compatible wallets

EUROC becomes Circle’s second digital currency. Like USDC, EUROC will be fully backed by euro-denominated reserves held by financial institutions within the US jurisdictions. 

From a wider economic perspective, launching a euro stablecoin is a legitimate and expected move. After the dollar, the Euro is the second-largest currency in the world, shared by 19 European Union member states. Despite this fact, the EURO hasn’t played one of the leading roles in the digital currency market. 

The launch of EUROC shows that the demand for a euro-based digital currency is rising. As more European financial institutions and financial investors continue to enter the digital asset market, they’ll become more interested in using euro-based stablecoins.  

Additionally, European banks provide custody and trading services for various DeFi tokens. This is a contributing factor leading to a higher demand for euro-based stablecoin products.  

Many DeFi users would prefer a euro stablecoin since they’re subject to foreign exchange risk when using a USD stablecoin.  EUROC would allow people to trade confidently and securely while removing volatility concerns. 

Tether’s Move – A British Pound-Pegged Stablecoin

A week after Circle’s EUROC release, Tether revealed it’ll launch a stablecoin pegged to the British Pound sterling.  The release will occur in July, and it’s planned to be built on the Ethereum blockchain.

The sterling-pegged GBPT will become Tether’s fifth fiat-pegged stablecoin, joining the U.S. dollar, Euro, Chinese yuan, and Mexican peso. Tether’s decision seems to align with the UK government’s plans to turn the country a “crypto-asset technology hub,” as officially stated in April.

Tether has been surrounded by several controversies over the last year, especially around its commercial paper holdings. Still, Tether remains an important crypto player, with its dollar-pegged coin, USDT, having a market cap of more than 70 billion dollars. 

A New EU Law Will Control the Euro-Stablecoin Market

Soon after EUROC’s release, the European Council and Parliament stepped up with the Markets in Crypto-Assets (MiCA) proposal. Meant to protect investors and bring more financial stability, the MiCA rules require cryptocurrency businesses to operate with a license and hold them accountable if they lose investors’ assets. 

The proposal suggests crypto issuers should publish a technical manifesto similar to a “white paper”, register it with the authorities, and keep bank-style reserves for stablecoins.

MiCA policy is still a draft report, and its final details need to be determined. The crypto community will have to wait and see if it will positively or negatively impact businesses.

European commissioners mentioned this is only the beginning, as they’ll further advance more laws that deal with new areas like crypto lending.

Conclusion – Bridging the Gap Between Traditional and Digital Currency

At first glance, EUROC, which comes as a combination between traditional and digital banking, will lead to:

  1. A support for the demand for euro
  2. An easier transfer of euro liquidity on blockchain networks
  3. More efficient cross-border payments

All of the above will be backed up by the European Central Bank (an important part of the financial supervisors in the Eurozone), which suggested it’ll support a greater adoption of a euro stablecoin in the future.

Businesses worldwide will use Euro Coin not only to handle activities or experiences in web3 but also across different exchanges and DeFi platforms. 

Any financial risk can now be easily managed through the existing Eurosystem’s oversight framework, including the above-mentioned MiCA regulation.