The future of euro stablecoins

Transcript

[Music] foreign [Music] all right hi everyone really excited to be here with all of you today it's uh my first Etc actually so I'm really looking forward to spending the week with all of you here in Paris my name is Patrick Henson I'm the director for EU strategy and policy at Circle and today in the next 15 minutes I want to talk about the future of Euro stable coins I want to start by just looking at the current state of the eurostable coin market and why it hasn't taken off so far

I would then discuss a few Trends and our hypotheses why I believe that the future of your stable coins will be different and very bright in the future and last but not least I want to briefly give you an update about eurocoin the Euro denominated stablecoin issued by Circle and how we are positioning eurocoin to play a key role in that bright future of your stable coins with that set let's dive in straight away and let's discuss the difficult state of the Euro stablecoin Market first so today few people want Euro stable coins out there um of the global market cap of 120 billion so that's the entire stablecoin

market cap out there less than 300 million are denominated in Euros that's less than 0.3 percent of the market and I think the state of the market is best illustrated by the chart that you can see in the upper right corner so essentially the entire stablecoin Market is dollarized at this moment and at least me personally I have a hard time finding any red color in the upper right chart um however if you take the the dollar out of the stablecoin equation if you look at basically non-dollar stable coins the euro is clearly leading with more than 90 percent of the non-dollar um stablecoin market share but overall I

think it's clear and I think everyone is aware here of that that Euro stable coins are lagging far behind the ES3 USD counterparts similar to the USD Market the market is very concentrated There is five euro stable coins that account for plus 95 of the market and just overall even if you look at D5 tvl if you look at centralized exchange trading volume if you look at you know the velocity the transactions the holding wallets the state of the Euro stablecoin market today is rather difficult and that obviously raises the big question that everyone's wondering about why because if you look at you know our current international monetary system why the euro is still lagging behind the

US dollar if you look at you know those various indicators that are listed here by by the ECB the usage of the Euro actually averages 20 so if you look at for example foreign exchange reserves globally the Euro stands at 20 percent if you look at Global Swift payments the usage of the Euro even accounts for 30 or even I mean that that is almost competitive with the usage of the US dollar for Global for Global Swift payments and so the question is why do we have a point zero percent Euro usage and the stablecoin market in the crypto markets and a 20 average of the Euro usage in in the traditional monetary system and I want to share with you today my

three main hypotheses for that one point that is often raised is you know the negative interest rates that we experienced here in the in the Euro area in the past but I don't think that that's the main reason so in my in my opinion there's three main three main aspects here the first one is that the network effects built you know by the first movers the US dollar stablecoin for the first movers in those crypto Capital markets these first movers advantages are very hard to catch up with because obviously liquidity begets liquidity in those markets and there's very few investors users out there in the web 3 markets that are willing to face an increased risk and higher costs due to lower liquidity and that's where that's why

almost everyone is just opting for those biggest liquidity pools denominated in US dollars the crypto Capital markets are an open Global Market similar to existing Commodities markets out there like oil so they tend to really structure around one unit of account and currently that's the dollar similar how you know the entire oil Market is almost denominated in dollars another aspect is that the institutional activity in these crypto markets is mainly concentrated in the US and that pushes obviously the usage of the dollar and last but not least the current retail users that are participating in these markets in the EU are less concerned by the FX risk that exists when those EU citizens and

users use the dollar so that's bucket number one the crypto Capital markets have just created a flywheel Network effect for US dollar stable coins the second one is the lack of regulatory Clarity at least in the past we have now seen the markets in crypto assets regulation in the uh being adopted in the last couple of weeks but prior to that it wasn't entirely 100 clear what kind of EU regulation I've listed a few here would apply to stable coins um there's a lot of similarities between existing e-money and stable coins but use uh authorities were always quite clear in saying there is not a perfect match yet and obviously that that led to institutional and corporate

investors being a little bit more hesitant when it comes to entering those markets and last but not least that the the third bucket is very much connected to the first two that's the lack of reward adoption and interconnectedness of those crypto Capital markets today including the stablecoin usage and as the integration into those real world economies is currently still lacking there's less incentives to use you know the local denominated currency the Euro for example here in the Euro Euro area so these are my my main three hypotheses and next I want to discuss with you a couple of Trends where I why I believe that you know this Euro stablecoin Market will really have a bright future

and those currently those barriers um will be overcome in the future so let's look at the bright future of Euro stable coins and a couple of trends that go along with that first one we are currently moving from speculation to utility I think that's true for the entire blockchain-based internet economy for the crypto Capital markets and I've just added here a few charts from our state of the uscc economy report that showed that for example for usdc we we can clearly see that uscc is not correlating with for example trading volume in Associated trading pairs on exchanges or even the price of Bitcoin so at least for what we call payment stable coins stable coins that are

backed by cash and cash equivalents we're clearly seeing a shift from speculative trading just on centralized exchanges to more usage in B2B payments and remittances and payroll and eight payments Etc and as the utility and as the usage of those stable coins shift towards more utility and reward use cases EU people and EU businesses will want to pay and get paid in their local currencies for many reasons for tax reasons accounting Finance Etc so I really believe that that Trend will lead to an increase Euro stablecoin usage and if you look at D5 for example as soon as we move from you know speculative D5 use where I just blend

some money in order to start a leveraged trade on some decentralized exchange I think as we see that user shifting to warm towards more real world activity if I want to take out a loan from a D5 liquidity pool and I want to use that loan in the real world economy in order to finance a car or a house I will want my local currency so D file liquidity as those as we will see more utility in D5 I think we will see more regionalized pools of liquidity that are more targeted towards that real world utility and economy on the ground and last but not least I think one sector where um that is I would say highly underestimated is the Foreign Exchange

Market with you know daily trading volumes of six or seven trillion and I I see a great future for you know an on-chain fx Market where you can instantly settle and trade for example the Euro against the dollar and we have published some studies together with friends from uni swap labs for example to show how for example remittances that are based on these on-chain FX markets and in that case that was a eurocoin uscc liquidity pool on uni swap can reduce remittance costs by more than 80 percent so I'm I'm really bullish when it comes to those on-chain FX markets another Trend I already touched on that is you know the regulatory Clarity and I would even go so far as to

say regulatory incentives to use your stable coins Mika has now been adopted by the EU institutions we have a 12-month implementation phase now until end of June next year where this you know Landmark EU crypto regulation will enter into application for stable coins in the EU and so as that happens I think we will see less hesitancy from institutional investors and corporations to enter the market so we will have regulatory Clarity and if you look at you know what's happening at the EU level but also on that at the national level you even see some regulatory sandboxes for example for Capital markets trading in the EU that's called the EU DLT pilot regime where the

EU openly allows for the usage of e-money tokens so-called stable coins Fiat back stable coins for Capital markets trading and settlement so that might be tokenized bonds or tokenized equities for example and there are similar developments in Germany in France and and elsewhere around the EU and finally closely connected to Trend 2 is the institutional adoption of crypto and stable coins I think I could have listed dozens and dozens of headlines here but I've taken out a few we have recently for example announced a collaboration with you know the German software giant sap that is starting to test the usage of usdc and Euro coin for cross-border B2B settlements of supplier

payments for example um so institutions and large corporations feel increasingly comfortable adopting those products and obviously those EU institutions they will want to use a unit of account in their local currency if you look at those corporations these systems are closely tied into their accounting systems Finance systems tax systems Etc they will need a euro-denominated assets once they tap into these markets so these Trends these three Trends bring me to my conclusion for the future of Euro stable coins I've tried to summarize that in these six different buckets first of all I

think the Euro Sable coin Market will be way more competitive than it is today we have seen some institutions launching or announcing their project already so cities in France DWS in Germany and I think we can expect way more institutions way more fintechs to announce their projects in the next 12 months second it will be fully regulated I think there's no future for unregulated Euro stable coins in the U.S of you know June 2024 this Market in my opinion will really be driven more by reward use cases instead of you know speculative trading activity in crypto Capital markets because there's the the networked effects of of

the USD will still Prevail in my opinion at least to some extent that future will be interconnected so the eurostable coin Market you know will be heavily integrated into existing eu-based payment and banking schemes for example zip power super instant institutions I think will enter the market and dominate that market and and also lead to more retail activity in those markets and last but not least and potentially a little bit more surprising for some here I believe that if you're that the Euro stable coin Market will be supported by political stakeholders in the EU because I believe as those internet economies that are based on blockchain will grow the importance of these markets for

local currencies will grow and I mean everyone is aware the ECB for example publishes you know a report about the international use of the Euro every every year and I think as those on-chain economies grow these political stakeholders will be very very much looking at what what role is actually the local currency playing in these markets and will be incentivizing and supporting that so this is so this is in my opinion why the future of Euro stable coins will be bright and I want to finish by just giving you a quick update on eurocoin and just you know um and just giving you an update in into how we are positioning eurocoin to

really playing a key role in that bright future of your Sable coins so as I hope most of you know eurocoin is that your denominated stablecoin issued by Circle Last Summer in June 2022 it is currently living on ethereum and Avalanche but we'll be supporting more blockchains in the near-term future it is always redeemable one to one for euros and more importantly I think that that is something we've announced already here in Paris in in March at Paris blockchain week we have applied in France for the regulatory licenses to really fully onshore eurocoin as a Mika compliant Imani token in to the EU further our goal is really to integrate

you know that Euro coin Financial infrastructure into the existing Euro payments and banking schemes so into uh instant Etc in order to make off on and off ramping as easy as possible and we want to further improve Euro coin liquidity and C find and D5 I think already today eurocoin is the most listed Euro stablecoin and centralized exchanges like coinbase but Panda bitvabo and others and last but not least and even more importantly we really want to Foster those real world use cases and and collaborations with Partners out there such as the sap use case that I mentioned earlier and we want to support those regulatory sandboxes where you can experiment and test the usage of furrow coin for for example Capital markets

trading and settlement so with that said thank you very much a lot thank you very much I'll be behind the scenes for further questions and and please reach out to us with actually a booth Circle booth in the other building so um always happy to to further chat with you about the future of Euro stable coins that in my in my opinion at least is very bright thank you [Applause] [Music] thank you

foreign foreign [Music]