TBW Premium #11: French banks protest against the digital euro, towards a "MiCA 2"...

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TBW Premium #11: French banks protest against the digital euro, towards a "MiCA 2"...

Read all about The Big Whale's 11th Premium newsletter.

23 June 2022

Hello Whales and welcome to the new kids who've just joined us in the Web3 deep end. Hold on tight, it's a bumpy ride at the moment! 🌊


A MiCA 2 already?

The opportunity was probably too good. Questioned this week in the European Parliament about the crypto crash, the head of the European Central Bank, Christine Lagarde, explained that we should already be considering a... "MiCA 2". The aim of such a text? To go even further in regulating the sector and, why not, to provide a framework for decentralised finance projects.

While we can obviously understand the French leader's need to put some order into a sector that has grown like crazy (and where some have clearly done anything but, like Celsius), we can nevertheless question the timing. "MiCA 1, which is already a major project in the European Parliament, is a long way from being adopted. At best, it will come into force at the end of 2023.

While Europe is regulating, and still regulating cryptos, the rest of the world is moving forward, and not just a little. Some are even taking the liberty of hunting on their own turf. The announcement by the American Circle that it will be launching a euro stablecoin in a few days' time is the finest example of this (more on that below).

For months, if not years, some European politicians and players have been calling for the creation of an "ambitious" euro stablecoin, pointing to the risk of a foreign player taking it on... Here we are. And it's a great "opportunity" missed by Europe.


Our exclusive news

👉 PSAN: the candidates' galley

Who would have thought? While the crypto markets are not at their best, the number of applications for registration in France as a "digital asset service provider" (DASP) continues to rise. So much so that the Autorité des marchés financiers (AMF), which has already registered more than thirty PSANs since 2020, is no longer able to manage the flow properly. The problem is not new, but it has become more acute in recent weeks, not least because the stock market watchdog has lost a large part of its specialist team on the subject. "They no longer have the skills in-house", laments one lawyer, pointing out the lengthening delays, especially for "small players". According to our information, several dozen French and foreign start-ups are currently waiting for a response.

👉 The French banking lobby is up in arms against the digital euro

It would appear that the digital euro does not have only friends, especially on the side of French banks. According to our information, last week the French Banking Federation (FBF), which brings together the entire sector, issued a strongly worded internal memo to its members criticising the 'digital euro' currently being tested by the European Central Bank (ECB). The stakes are high for Crédit Agricole and other banks, because a central bank's digital euro (if the ECB decides to create it) could potentially disintermediate the relationship between commercial banks and their customers, with an account system hosted directly by the ECB. However, it is not certain that a strategy of head-on opposition is the best solution...

👉 Binance futures shutdown would only be temporary

The crypto-sphere was in turmoil yesterday after Binance announced that it would be discontinuing several derivatives services for French users from 2 August. These include Futures, Options, Leveraged Tokens and Binance EARN - Double Investment. It is the suspension of futures, which allow traders to bet up or down with leverage of up to 125, that has generated the most reaction. But according to our information, this measure is only temporary. "The aim is for Binance to show its credentials once it has arrived in France, before reopening these services in a few months' time", says a person familiar with the matter. The biggest platform on the planet (more than 100 million customers), which already has PSAN status, is said to have applied to the AMF to become an "investment services provider" (ISP). This licence is aimed at companies that offer derivative products. Binance could obtain it by the end of the year.

Do you have any information? Contact us!


The background to the launch of the Euro Coin 🇺🇸

Euro Coin Logo

👉 News. The US company Circle, already an issuer of the USDC, will launch a euro stablecoin on 30 June.

👉 Background. Rising rates in Europe and the end of debates in Parliament around the future regulation of cryptos (MiCA) offers Circle a perfect window of opportunity.

👉Why it matters.What could quickly become the largest euro stablecoin will be controlled from the US and could escape Brussels.

Like a thunderclap. Last Thursday, the American giant Circle announced the launch of a euro stablecoin, the Euro Coin. The news prompted strong reactions from some leading figures in the European crypto ecosystem. "So the US regulator will supervise one of the only... euro stablecoins! How short-sighted of our leaders!" reacted former French MP Pierre Person. "Great, so now the Americans will be issuing our digital euro. Shame on our European leaders!"

For his part, Julien Bouteloup, a leading crypto entrepreneur (Curve, StakeDAO), fulminated.

If the reactions have been so strong, it's because the subject is a sensitive one. Stablecoins have become an essential link in crypto. Over the past 12 months, $6213 billion worth of stablecoins have been traded, according to analysis company CoinMetrics. The development of a euro stablecoin is vital, as the dollar accounts for 99% of stablecoin trading. Euro stablecoins backed by French players do exist, such as Lugh (backed by the Casino Group and Société Générale), jEUR (Jarvis Network) and agEUR (Angle Protocol), but these are still not very liquid and are relatively confidential.

In contrast, Euro Coin, with Circle's strike force, could quickly become available just about everywhere and become the largest stablecoin denominated in the single currency!

Circle explained that the Euro Coin reserve will be placed "with financial institutions within the US regulatory perimeter, starting with Silvergate Bank". The latter is based in California and notably recovered the assets of Diem, the stillborn digital currency project of Meta (ex-Facebook), after it was dismantled at the beginning of 2022.

Rising rates in Europe could justify the launch

Why has Circle decided to launch now, and not before? Although the American company has not communicated on this, the context may have strongly influenced its decision. Firstly in monetary terms. Since 2014, commercial banks have had to pay a 'tax' on the funds they leave in the ECB's vaults (currently 0.5%). This complicated the profitability of stablecoin projects based on a bank reserve. However, Christine Lagarde pledged on 9 June to put an end to this by September...

Surging interest rates on European bonds may also have had an impact on the timetable for the company headed by Jeremy Allaire. As the USDC's reserve is made up of cash and short-dated US Treasuries, the same is likely to be true of the Euro Coin. As Circle does not charge any fees when issuing its stablecoins, the company needs to grow its reserve to be profitable.

Now, all the lights are green, especially as the launch on 30 June should coincide -very exactly- with the end of discussions in the European Parliament around the future regulation of the sector (MiCA). Coincidence or not, Circle will therefore not be the subject of a specific exchange, which should suit it just fine.

The issue of European regulation

As it stands, Euro Coin is exempt from any European jurisdiction, but it will have to comply with MiCA when it comes into force (not before 2023) in order to be available in Europe. In other words, Circle will have to obtain a licence for its stablecoin to be distributed in Europe. This will involve setting up a local subsidiary and probably keeping the funds with an EU bank. For the moment, this is not what is in the offing, and Brussels is likely to do everything in its power to put obstacles in its way. But if the project is not aimed directly at Europeans, the EU will have a hard time reaching it...

According to William O'Rorke, a lawyer with ORWL, a firm specialising in disruptive technology law, "as long as they don't set foot in Europe, they should be fine". In his view, if Circle refrains from distributing it in Europe and advertising it, Brussels won't be able to do much about it.

According to a note published on 20 June by several European legal experts, the Euro Coin could be used in international financial centres such as New York, Hong Kong, Singapore, as well as London and Zurich, which are not part of the European Union. As you will recall, blockchain technology enables cross-border payments to be made virtually instantaneously at near-zero cost. This is far more advantageous than with the traditional system, where it takes several days to process a transaction (excluding fees). These are all features that could encourage foreign institutional players to use Euro Coin.

These experts also point out that it could be used as a foreign exchange reserve in place of the traditional euro for many countries, as well as international institutions such as the International Monetary Fund (IMF). For European multinationals, such as car manufacturers, it could also be used via their foreign subsidiaries to route all their transactions outside Europe. They would simply have to convert their Euro Coin on a foreign exchange platform into euros and then repatriate them.

"Although it may seem strange at first glance, there are huge commercial opportunities for issuers of a stablecoin euro that would not be available in Europe," insist the experts. All under the patronage of the US regulator.


Bitcoin custody: StackinSat's gamble 🔐


As the recent setbacks of several platforms have reignited debates about crypto custody, StackinSat co-founder Jonathan Herscovici explains how he wants to restore customer confidence via his new custody service.

The Big Whale: You've just launched a custody offering. How do you assure your customers that you are holding their bitcoins?

Jonathan Herscovici: As the Celsius case has shown, many companies that hold bitcoins on behalf of their customers are not transparent. The user account may show a balance, but it often happens that the cryptos are no longer actually in the possession of the company, which will have placed them elsewhere in an attempt to earn a return. For us, this is a problem, which is why we have launched a custody service with a "proof of transparency": at any time, our customers can consult their balance on a Bitcoin address that is specific to them. This ensures that the funds are actually there. Secondly, we will annually issue a cryptographic proof of reserve to demonstrate that we are solvent and do in fact hold all the Bitcoins we claim to have.

What solution enables you to achieve this?

We use Fireblocks' services to hold the Bitcoins, but it was we who developed the functionality that enables this proof of reserve to be issued. The American exchange platform Kraken already offers this type of service, but this is the first time that a European player has offered it. In terms of security, we have called in a team of hackers via the Yes We Hack platform (which uses ethical hackers) to detect any vulnerabilities. This programme started at the beginning of June and is still ongoing. In all, around thirty people have tried to attack us, but never succeeded.

What are StackinSat's future plans?

We plan to raise another round of funding, this time in Series A, within a year. The road show is due to start in January. On the product side, from next year we'll be offering the option of pre-loading euros to make better one-off purchases. At the moment, anyone wishing to buy bitcoins has to make a bank transfer and wait several days for the transaction to go through. This is not optimal for users who are attentive to market fluctuations. We will also be offering a bitcoin redemption function for customers who wish to resell their assets. All this is part of our drive to develop a Bitcoin neo-bank, bearing in mind that we also plan to integrate Lightning Network for payments. On the other hand, we have ruled out the idea of introducing a system of returns on our customers' bitcoins. We took this decision before the problems experienced by Celsius, but current events confirm our decision.

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