Is negative interest rate reason for missing euro stablecoin? All about EUROC from Circle

Last Updated: 6 July 2022

There are many stablecoins that promise to be a digital equivalent of the US dollar, but there are few stablecoins that mimic the euro. According to Jonas Gross of Etonec, this is because interest rates are negative almost everywhere in Europe. Still, stablecoin company, Circle, dares to launch a euro-stablecoin, but this will only be available in the US for now.

USDC versus Euro

The name ‘Circle’ may not mean anything to you, but you have probably come across their stablecoin USDC. It has been around for years and is the most popular stablecoin on the crypto market after Tether’s USDT. 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 like a matter of time before one dollar-stablecoin is worth one euro.

For the time being, only in the United States

On 30 June, Circle launched their Euro Coin EUROC. The American bank, Silvergate, manages the euro-denominated funds required to ensure that the stablecoin always has the same value. After all, users must be able to exchange their EUROC for real euros at all times.

For the time being, 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 licences have to be obtained first.

This is how Circle distinguishes itself from Tether and the fallen Terra. For example, they present themselves as the good guys in 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 that the standards for the new stablecoin will comply with US regulatory standards applicable to major fintech and payment companies such as PayPal, Stripe, Square, and Vemo.

Negative interest rate reason for euro cryptocurrency’s failure to appear

If you scroll through Coinmarketcap, you will find a number of stablecoins on the first page, but they are all based on the dollar. It’s 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, the interest rate has 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.”

European regulation

In addition, our European parliament is also not the clearest. They have not yet taken an official position on stablecoins and issued guidelines for member states on this. According to Maximilian Forster of CashOnLedger, this uncertainty is responsible for the lack of a euro stablecoin:

“Due to 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.”

Recently, EU regulators did reach an agreement on MiCA (from 2024), which emphasised 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 must 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 clarification 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 destabilise USDC.

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

  • Steven Gray

    Steven Gray is an experienced cryptocurrency and blockchain journalist with over 7 years of reporting on the crypto industry across major publications. His proficiency in technical analysis provides him the skills to evaluate complex trading algorithms and AI systems. Steven leverages his extensive network of academics and finance professionals to incorporate expert opinions into his unbiased analyses.

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