Euro-Denominated Stablecoins Vie in MiCA Era

The EURM token is the latest euro-denominated stablecoin endorsed by Spain’s central bank.

The new digital euro will be issued by Spanish FinTech Monei, which has been authorized by the Banco de España (BDE) to test the stablecoin in its regulatory sandbox, Spanish media has reported.

EURM tokens will be backed with fiat euros held in accounts at BBVA and Caixabank, and during the trial phase, the stablecoins will only be available to a small group of people in Spain and limited to 10 euros each.

To access the coins, users will need to verify their identity and load their wallets using the Bizum digital payment system to swap fiat for stablecoin euros.

While EURM won’t be the first Euro-based stablecoin, if it gets the green light from the BDE after the trial period, it will be the first such digital token to receive the official stamp of approval from the European central bank — key support which may give EURM the air of credibility it needs to gain favor with businesses and consumers.

An Increasingly Crowded Market

Of course, EURM isn’t the first euro stablecoin, and there’ve been alternative offerings from Circle, Tether and Stasis that have managed to achieve market capitalizations in the tens of millions without the backing of any central bank.

But Monei’s entry to the market comes at a time when EU policymakers are becoming increasingly vocal in their opposition to unbacked, unregulated crypto assets, and the Spanish FinTech may be able to turn a perceived lack of oversight among its rivals to its advantage.

After all, 2022 saw the collapse of the TerraUSD algorithmic stablecoin. And in hindsight, the string of crypto casualties that followed, right up to the FTX scandal in November, begin to look like falling dominoes in the wake of the Terra affair.

Comments made by Fabio Panetta, member of the executive board of the European Central Bank (ECB), reveal a view that is shared by many officials at European central banks.

“The [2022 crypto] crash has served as a cautionary reminder that finance cannot be trustless and stable at the same time. Trust cannot be replaced by religious faith in an algorithm. It requires transparency, regulatory safeguards and scrutiny,” Panetta told an audience at the London Business School in December.

He added that the crypto philosophy in which digital technology can replace regulated intermediaries is “an illusion,” and that “the absence of regulation and public scrutiny [has] blinded investors to the risks involved.”

What MiCA Means for Stablecoin Issuers

Currently, the EU’s efforts to bring stablecoins within the regulatory perimeter are centered on the Markets in Crypto Assets (MiCA) regulation, which, following several delays, is set to be voted on in April.

For FinTechs like Monei, the key provision in MiCA is that it will require all stablecoin issuers to be licensed as either an eMoney institution (which Monei is) or a credit institution by an appropriate EU authority.

As well as giving regulators new powers to oversee and, if necessary, sanction stablecoin issuers, MiCA also makes a key distinction between different types of stablecoins: on the one hand, coins like EURM, which are backed by fiat currency held in a bank, and on the other, so-called “asset-referenced tokens,” which are stablecoins backed by other assets.

For fiat-backed stablecoins, issuers will be required to maintain sufficient liquidity reserves and be able to offer holders commission-free redemptions in fiat currency.

Heightened supervision will also be in place for the most popular stablecoins, with the European Banking Authority (EBA) overseeing stablecoins with more than 10 million users or 5 billion euros in circulation.

After flip-flopping back and forth on the issue, the eventual MiCA text provides for a cap on non-euro stablecoin transactions intended to strengthen the position of euro-pegged tokens and limit the influence of dollar-denominated stablecoins.

With the EU taking a strict line on stablecoins, one issuer has already chosen to back out of the game.

Earlier this month, e-Money, an electronic payment system built on the Cosmos network, said that it has stopped issuing its euro-backed stablecoin and will now wind down the project.

In a blog post announcing the news, e-Money said that “the upcoming European MiCA legislation is expected to hinder the scalability of Euro-backed stablecoins and limit business opportunities in the sector.” It added that the MiCA legislation “favors commercial banks as future issuers of Euro stablecoins, hurting innovation in the European Union.”

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