Silence of the Lambs – Euro stablecoins, anyone?
- Europe is the top crypto-economy when looking at transaction volumes.
- Issuance of Euro-backed stablecoins is 1/1000th of their USD-backed siblings.
- The ECB and national legislation is hostile, but that alone doesn’t explain the glaring difference.
- Cultural patterns reinforce legislative hurdles and stop projects in their tracks.
The biggest (crypto) economy in the world
Who’s number one?
Look at the cumulative value of cryptocurrency transactions, and Central and North-Western Europe (CNWE) come out on top, ahead of North America and Central and Southern Asia. CNWE is also the top crypto transaction counterparty.
Large European institutions and De-Fi are the two main drivers of volume, according to a Chainalysis report from 28 September 2021, which shows the UK dominating European volume.
Thinking about Europe as the world’s crypto hub is far from hyperbole. It could even be called ‘science backed’.
The hole in the stablecoin bucket
The absence of prominent Euro-backed stablecoins is all the more glaring. Here’s a list of contenders.
- EURS has almost €90m issued and trades on Curve, Uniswap, Bancor et al. Not bad. Not bad at all. Until you realise that just Tether (USDT) and USD Coin (USDC) have the combined equivalent of €87bn issued. Yes, that’s 1000x.
- EURt, probably pronounced like the hippie-favoured ‘alternative housing’, is Bitstamp’s Euro-Tether. €40m issued—less than 1‰ of its American cousin.
- Parallel, developed by the Mimo protocol (formerly TenX) to ‘provide a worthy alternative to dollar-backed stablecoins’. €8m fully diluted market cap, according to Etherscan. Maybe in a parallel universe.
- RBI Coin, by Austrian agro-bank Raiffeisen, isn’t available to the public and focuses on asset tokenisation. Okay, whatever. The good news here is a mid-sized EU bank with strong CEE ties doing active blockchain research. Apparently, Raiffeisen “launched a blockchain platform for the fast settlement of intercompany payments in Moscow (in 2020)”.
- EURB is Munich-based Bankhaus von der Heydt’s effort to develop a Euro-backed stablecoin on the Stellar Lumen network in conjunction with Bitbond. The token isn’t even tracking on Coinmarketcap. Is anyone else experiencing slight dysphoria here?
- Lugh runs on Tezos and involves prime bank Societé General. The website is flashy, but the one job opening for a ‘Head of Sales and Partnerships’ reads ‘This is some text inside of a div block’. Okay, okay, they just started.
Notice anything? Right! There is nothing to notice! The blatant absence of big-boy Euro-backed stablecoins is glaring. Why is there so little demand?
It’s the regulations, stupid
The European Central Bank was distant and cold the few times it was on the record about stablecoins. It is demanding a veto right over Euro-backed stablecoin projects from European Union lawmakers. The shepherds of the EU’s financial future further want issuers of stablecoins to submit to the same liquidity requirements as banks and other financial institutions. Since any earnest stablecoin collateralises at least 1:1, this last point will not pose much of an issue.
In September 2020, France, Spain, the Netherlands, Italy, and Germany backed the European Commission’s intent to draft regulations for stablecoins. Their primary concern is “adequate customer protection levels and maintaining regulators’ ability to influence monetary policies in their jurisdictions.” The gist at this meeting was to ban stablecoins from operating within the European Union until “regulatory and oversight issues had been addressed.”
That is not encouraging. Ouch!
To add insult to injury, the agency told Reuters in February 2021: “Where an asset referencing system is equivalent to a payment system or device, the assessment of the potential threat to the conduct of monetary policy and the proper functioning of payment systems should be the sole responsibility of the ECB.”
Clearly hostile. The focus on ‘regulatory oversight’ for ‘customer protection’ is striking. Don Corleone from Sicily was one of the main contributors at the meeting. Just kidding. Although it smells like an old-fashioned protection racket.
At the same time, however, EU banks like Societé General and Raiffeisen are making headway with their stablecoin effort, and the ECB has repeatedly talked about a Central Bank Digital Currency (CBDC).
Tether, DAI and USD Coin attracted billions of dollars in demand when US regulations were not exactly favourable for cryptocurrencies and stablecoins.
On 1 October, the Wall Street Journal reported: “Biden Administration Seeks to Regulate Stablecoin Issuers as Banks. The move would aim to address concerns that the digital currency could fuel financial panics”. Once more, our beloved leaders intervene for our common good. Doesn’t that feel amazing?
Also, is the US copying EU regulatory moves? It wouldn’t be the first time: many states, especially California, copied epochal privacy legislation GDPR.
According to journalist Gregory Raymond, regulation alone can not explain why the cryptocurrency universe “currently operates almost exclusively in dollars”. He warns that "slowing down this sector risks losing the opportunity to exercise Europe’s technological and monetary sovereignty."
Something else is at play here. Something more profound and archetypical.
A bit of Euro psychology
Many Europeans are sceptical of the Euro and its stewardship by the ECB. They fear decreasing purchasing power and a ‘failed experiment’. There’s also the colossal challenge of stabilising a currency across 19 nations, with no direct regulatory control from the ECB, which can recommend but not legislate.
The PIGS debt crisis almost tore the alliance apart and left the Euro’s image tarnished.
Failed experiments are dreaded in Europe and entail a lot of shame. There’s no shortage of public humiliation if something big fails. Media outlets latch on to their prey and engage in told-you-so orgies.
As a generalisation, Europeans think more diligently and at greater length about what could go wrong and avoid it before starting an enterprise. The result is a higher quality of entrants but fewer shots at the goal.
Radical technology advancements see very different adoption curves compared to Americans. This mindset slows disruptive innovation down tremendously.
Crypto-Europeans are used to deal in Dollar-denominations. After all, bitcoin came from the US. They accept the exchange rate risk and move on or hedge against it if they are sophisticated enough.
Late? Or never?
The ECB has repeatedly hinted at developing a path for stablecoins. It will be painful and tightly regulated. It will probably restrict issuance to the central bank itself.
Then there’s the European e-money license. E-Money is “a technical device that may be widely used for making payments”. This license would permit stablecoins, at least in theory.
The European Payment Services Directive 2 (PSD2), with solid KYC, is a requirement, and a myriad of other legal boxes need checking before a license is issued. As usual in the EU, individual legislations differ. Take Lithuania, for instance. The baltic state is gung-ho on attracting lucrative FinTech startups and makes obtaining an e-money license much more accessible.
European entrepreneurs’ penchant not to rock the regulatory boat, combined with the scepticism surrounding the Euro and the sabre-rattling from the ECB, create a perfect storm for Euro-backed stablecoins. The way out is greed.
Demand is the best way to unlock supply. Why should entrepreneurs overcome their psychological biases or the steep regulatory hurdles when Europeans are okay with USD denominations?
Despite the WWW being invented in Switzerland, Europe slept on the beat to its devastating loss. When ranking companies by market cap, the first European entry is luxury retail giant LVMH at place 20! Eight out of the top ten mega corporations are tech companies founded less than forty years ago.
EU regulators need to get the crypto-ball rolling now! Or Europe risks watching Web3 from the sidelines.
It is not an exaggeration to say that the welfare of nations is at stake here. Apart from the financial gains, this is about shaping the future.
The trillion-Euro question is: Can Europeans rise to the challenge and assert their identity and presence on the global stage? And will it happen late? Or never?
“Do not go gentle into that good night”, as Dylan Thomas demanded in his iconic poem. And what Europeans should make their mantra if they want to overcome their complacency and press regulators to strengthen where it is already dominant.
Europe is a crypto transaction powerhouse. Now entrepreneurs in the Eurozone need to step up to the plate, take the lead and show the ECB that stablecoin risks can be managed.
CNWE is already numero uno in one category. Why stop there?