Stablecoins: euro time at last?

This is a market that has been in its infancy until now, but it could be about to get off to a flying start in the next few months.

And it's about time, because so far the figures are stark. With a 0.2% market share, euro stablecoins are still just a drop in the ocean in a market that is outrageously dominated by the dollar at over 99%, led by the giants Tether, issuer of the USDT, and Circle, issuer of the USDC, with market capitalisations of $118 billion and $35 billion respectively.

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"At the moment, demand for euro on-chain is virtually non-existent, mainly because of lower interest rates than the dollar and relative liquidity in decentralised finance compared with dollar stablecoins," explains Olivier Mammet, head of trading at US platform Gemini, known for having been launched by the Winklevoss brothers.

"Outside Europe, there isn't really a market for euro stablecoins. And in countries with high inflation like Argentina, people prefer to use dollars," explains in an interview with Tether CEO Paolo Ardoino.

But the growing institutionalisation of the sector and the assumption that the traditional financial world will gradually switch over to blockchain in the coming years, particularly as part of the tokenisation of assets, logically make the euro a next market to conquer.

According to our information, euro stablecoins will thus multiply in the coming months and over the period 2025-2026. Here's why it's now credible to think that it's finally time for euro stablecoins.

With MiCA, (finally) a more reassuring regulatory framework

Since 1 July, the MiCA (Market in Crypto-Assets) strand, this regulation designed to harmonise the rules between the 27 countries of the European Union concerning the crypto market, has come into force with regard to stablecoins.

With it, Europe has become the first region in the world to have a regulatory framework governing stablecoins; this is still not the case in the United States.

"Being treated as e-money in MiCA (e-money token), regulated stablecoins are now a form of regulated currency circulating on public blockchains," enthused Jeremy Allaire, CEO of Circle, a short while ago in an interview with The Big Whale. "This regulatory assurance opens up possibilities for institutions in terms of cash management or payments that didn't exist before," he continues.

MiCA also puts bank-licensed institutions in the perfect position: unlike crypto companies (such as Circle), they do not need to multiply banking partners to ensure the safekeeping of part of their reserves.

Even more so as banks do not need to obtain an electronic money licence (EME), since they are already credit institutions. All they have to do is notify a white paper to their regulator to launch their stablecoin.

Since 1 July, two institutions have already taken the plunge. The first is obviously SG-Forge, a subsidiary of the Société Générale group, which has been issuing CoinVertible (EURCV) on Ethereum since April 2023 and on the Solana network since 20 September. Listed on Bitstamp, its capitalisation is currently modest - €33 million - but the French bank has big ambitions in this area.

The other player to have jumped on the bandwagon is Banking Circle. This fintech launched in 2016 obtained its banking licence in 2020 in Luxembourg and bills itself as one of the most crypto-friendly banks in Europe.

In contrast to SG-Forge, which had to obtain an EME licence, Banking Circle uses its banking licence to issue EURITE, its euro stablecoin officially regulated by MiCA since 26 August. Listed by Binance, the capitalisation of this stablecoin is currently just under €30 million.

In addition to Circle and these two banks, another player is already regulated for MiCA: Iceland's Monerium with their EURe (€15 million capitalisation and only available on decentralised finance protocols).

"For the moment, the first-mover advantage is still very important in crypto," explains Olivier Mammet, head of trading at Gemini. "Everyone has in mind what Tether and Circle have managed to do with the dollar," he continues.

Banks, crypto players or payment providers... even though there will be many trying their luck in the coming months, consolidation of the sector is bound to happen. "That's what regulators are looking for in particular, as they won't necessarily want to find themselves managing a slew of fanciful projects," chuckles a lawyer in the sector.

"There are bound to be barriers, either regulatory or market barriers, that will be established very quickly. The breakeven point of activity is very high and not everyone has the backbone to manage this kind of activity," anticipates Jean-Marc Stenger, CEO of SG-Forge.

For the moment, MiCA largely excludes the use of decentralised stablecoins such as the EURA from the Angle protocol or the USD0 from the Usual protocol, by traditional institutional investors, as these fall under the "DeFi exemption". Except that for the moment, no clear definition of the term "decentralised" has been given by the authorities.

Towards a rebalancing similar to the traditional money market

"We are betting on the fact that the majority of financial flows will switch to public blockchains in the coming years, which are more efficient for many operations. As such, we believe that the euro will be no exception to the rule," Dante Disparte, chief strategy officer at Circle, tells The Big Whale.

Over the whole of 2023, the dollar accounted for almost 45% of daily volumes on the currency market compared with just over 16% for the euro, according to data from the London Foreign Exchange Committee. Players are therefore betting that the stablecoin market will rebalance in this direction, with the euro stablecoin market set to take off well beyond its current 0.2% market share.

Even more so since, according to Cuy Sheffield, Visa's head of crypto topics, non-dollar-denominated stablecoins will multiply fairly quickly. "Dollars are great for cross-border payments, but then you need to be able to convert them quickly and efficiently into local currency," he explained on 20 September at the Solana Breakpoint event in Singapore (Raphaël attended).

In this respect, Circle seems ideally placed, since the issuer has two stablecoins in euros and regulated dollars.

In addition to cross-border payments, the tokenisation of assets will also encourage the development of euro stablecoins as a settlement currency, even as the first traditional products such as money market funds begin to appear on-chain.

SG-Forge is in the starting blocks for this market with EURCV and Olky Pay has ambitions to offer EUSTA in the coming months.

As for Tether, it plans to launch a white-label tokenisation platform at the end of October, which will incorporate "all the technology with which we have deployed our stablecoins. Many of the players we are talking to are interested in using it integrating the euro," explains Paolo Ardoino.

Launching this platform would enable Tether to continue to do business in Europe even though the market's largest issuer currently has no intention of complying with MiCA's requirements to be officially regulated in Europe.

Adoption still low-key in DeFi, but making progress

The next few months will be decisive for issuers to get their stablecoins adopted in decentralised finance (DeFi).

While pools have begun to emerge for Circle's EURC, this is not yet the case for SG-Forge's EURCV. But according to our information, there are discussions with several protocols such as Morpho Blue.

SG-Forge will clearly accelerate in the coming months at this level, with the crypto customer base being one of the targets aimed at by the subsidiary headed by Jean-Marc Stenger.

At the end of August, a USDC/EURC pool was launched on Aerodrome, an Automated Market Maker (AMM) deployed on Base, the layer 2 launched by Coinbase, reputed to be historically close to Circle. Exchange fees were 0.01%.

"In the immediate term, there is real demand for the euro/dollar pair directly on-chain, which would mean traders no longer having to systematically go back through the banking system to manage euros. Round trips that can be costly and time-consuming," notes Olivier Mammet.

In the 3rd quarter of 2024, Monerium plans to roll out a solution giving its users access to Forex (foreign exchange market) liquidity, where nearly $8 trillion is traded daily. Its customers would then be able to trade very large volumes at prices comparable to the traditional system.

"The doors to Forex are still largely closed to crypto institutions. Our aim is to give them access to this liquidity by providing regulated access for this purpose," explains Gísli Kristjánsson, co-founder and Chief Technical Officer (CTO) of Monerium.

Others such as Angle Protocol are also positioning themselves on this Forex market, but in a decentralised manner. Historically the issuer of a euro stablecoin, the EURA (ex-agEUR), the protocol co-founded by Frenchman Pablo Veyrat has expanded its activities in response to the lack of demand for the euro in DeFi, by launching a dollar stablecoin, the USDA.

Read also - Pablo Veyrat (Angle Protocol): "We want to become the most efficient way to exchange stablecoins"

"The aim is to offer low-cost stablecoin exchange by avoiding price slippage or excessive conversion rates as much as possible. With our reserve mechanism, we want to enable our users to exchange dollars and euros at no extra cost. By having a stablecoin euro and dollar, we can meet 99% of market demand," Pablo Veyrat details.