On June 16, 2022, Circle Internet Financial Ltd announced the launch of its fully reserved euro-backed stablecoin. The project has been christened Euro Coin, or EUROC, and will be the first stablecoin back by the euro. It is due for release on June 30, 2022, to institutional investors.
Circle has already proved its worth by successfully launching and operating the USD Coin (USDC), which is the second largest stablecoin in the industry. Its latest venture, The Euro Coin (EUROC), will be a fully regulated cryptocurrency pegged 1:1 with the Euro and will follow the ‘full-reserve model’.
This means that the EUROC will solely rely on the strength of its reserves to maintain its peg with the euro. All Euro Coins in circulation will be backed by an equivalent of euro-denominated reserves. Any increase in the circulating supply of EUROC would call for an equal increase in its reserve as well.
These reserves will be held in custody by financial institutions regulated by the United States. One of them is Silvergate Bank, which has also funded Michael Saylor’s recent Bitcoin purchases worth $205 million.
Fully reserved stablecoins are a safer bet than algorithmic stablecoins like the TerraUSD (UST) that crashed and burned this May. UST used an algorithm and a reserve of Luna (Terra’s native cryptocurrency) to maintain its peg with the US Dollar. However, this method proved unreliable as UST lost its 1:1 peg with the dollar and spiralled out of control.
In a May 2022 interview with CNBC after the Terra UST collapse, Circle CEO Jeremy Allaire said, “We have always felt there was a need for a regulatory framework around stablecoins. That’s why when we launched the USDC 4 years ago, we launched it under the regulatory framework, both federal and state, that ensured consumer protection was in place, that there was always a 100 percent reserve.”
While the UST meltdown cast doubts on the stablecoin industry, it was quickly followed by strict legislation from Japan and New York State. While the Japanese bill recognized and legalised stablecoins, the Lummis-Gillibrand bill in NY regulated and deemed stablecoins digital money. This kind of legislation after such a large catastrophe is a testament to the potential of the segment.
The Euro Coin will first appear as an ERC-20 token powered by the Ethereum blockchain. Support for other networks will be added in due course. It will be used for making payments, trading, and DeFi activities like lending and borrowing. The launch of the EUROC is expected to add liquidity to businesses that rely on the availability of the Euro for their transactions.
Circle’s Euro Coin announcement comes soon after its closest USDC rival, Tether, suffered massive losses in mid-May. Tether’s peg with the US Dollar wobbled from $1 to 98 cents, slashing its market capitalisation from $83 billion to $74 billion. This brief meltdown caused investors to look for safer alternatives, and they found one in USDC, which has consistently maintained its 1:1 peg with the US Dollar.
“Circle has set industry-leading standards for moving financial value across the internet with USDC,” wrote Circle Cofounder and CEO Jeremy Allaire in the official press release. “There is clear market demand for a digital currency denominated in euros, the world’s second most traded currency after the US dollar. With USDC and Euro Coin, Circle is helping to unlock a new era of fast, inexpensive, secure and interoperable value exchange worldwide,” he added.
According to the Bank for International Settlement (BIS), the euro is the world’s second most sought-after fiat currency after the US dollar. A total of 19 Eurozone countries share this fiat currency, making it the second-largest fiat currency in existence.
“Together, Euro Coin and USDC unlock new possibilities for multi-currency digital banking and near-instant foreign exchange, where daily volume in traditional markets can top $6.6 trillion globally,” read the official statement on the Circle website.
