New stablecoin alternative in the market? Overview of EUROe
TL;DR Latest stablecoin newcomer in DeFi called EUROe brings new features to stablecoin space and promises to redefine how we see them now & in the future
Over the past many years there have been various attempts to build next truly functional and “perfect” stablecoin in Decentralized Finance-space in short, called “DeFi”.
Essentially, stablecoin is a virtual asset which is pegged to a specific asset which value doesn’t fluctuate, in other words - it keeps stability. Majority of us, human beings, need stability in our lives. Good example could be paying bills, paying for groceries, other consumption. And - although, cryptospace provides great new tools and solutions, so far it has been lacking the stability of the asset value. There are few theories, main being:
Small market capitalization which leads to high volatility ( = when something hits the fan, investors pour out the liquidity quickly out of market)
Market speculation ( = scams, pumps & dumps)
Lack of rules & regulation ( = Wild-West)
Probably most widely known popular stablecoin-implementations have been so far Tether USD (short: USDT) and Circle USD (short: USDC). There are also number of other so-called algorithmic dollar and euro-pegged stablecoins (some of which failed in recent years) but that’s completely separate story I won’t dig deeper into in this post.
Transparency and challenges with lack of existing playrules for stablecoins
First of all it’s good to understand that traditional finance has been always struggling with lack of transparency, although after number of financial crises in the past 30 years, legislation and regulations has been slowly turning the big ships towards better accountability & digitalization. However, up this day, the lack of transparency and serving people and businesses with maximum value in mind hasn’t been never addressed to its fullest. Perhaps this also has contributed to perception that financial institutions are somehow untouchable, mystic and very complicated that average person could never understand to its’ fullest nor have impact on.
Quick and international development of crypto space has forced countries and unions to come up with legislation and rules. This is to create systematic approach, playbook and order to avoid uncontrollable development of such solutions which could potentially harm regular citizens. At high-level, such a legislation somewhat resembles existing legislation for protection of investors. Such set of legislations is set to be launched by European Union called MiCA (Market in Crypto-Assets). Similar legislations are in works as of 2023 at least in the United States by SEC or Singapore by local financial governmental regulator.
EUROe - the features
What makes this newcomer, EUROe, different from all other stablecoin implementations, let’s find out.
According to Membrane Finance - a developer standing behind EUROe, mission is to continue leveraging great potential of blockchain technology. Things to address are mostly around topics in which existing or previous stablecoin projects have failed to deliver on. In this project, company has serious plans to establish a such environment which could help move traditional finance- and institutions to realize potential of Web3 solutions in much broader context.
Membrane lists a number of plethora of new use cases like new forms of company entities, smart contract programmability, asset tokenization, NFTs. All these multipurposes are addressed from day one in the underlying mission of EUROe.
What are the core perks:
Support for multiple blockchains. Launched first on Ethereum and on Polygon but later on there are intentions to scale to other blockchains on layer 1 or 2 level. So far, there are plans to launch on Solana and Arbitrum protocols. These chains are known for their transaction speed, security and most importantly - cost-efficiency. This is indeed smart move when it comes to efforts of stablecoin mass adoption.
Energy efficiency and small environmental impact. Leveraging Proof-of-Stake blockchain technology like Ethereum, EUROe will be on the list of those energy efficient stablecoins which have small impact on environment. In recent years this has been rather hot topic specially from critics towards blockchain solutions utilizing Proof-of-Work methodology.
Backed by real-fiat Euros in 1:1 ratio. There are at the moment of writing this any known stablecoin which is regulated and backed by real fiat-euros.
Multifunctionality. EUROe is developed as ERC20-standard token which means that it’s fully compatible with the ultimate majority of Ethereum-based financial applications out there. Use cases vary from already known-to-us like making purchases, to lending, taking loans or investing. To speed up things up, financial institutions can leverage such technology to make fast remittances between each other in regulated way thus lowering overhead costs of their old legacy systems. Costs will be significantly reduced, thanks to transparency of blockchain without need to create additional costly manual reporting about transactions like done today.
Designed in Finland and approved by Finnish Financial Supervision Authority. From practical side this means that Membrane will be having status of electronic money institution provider and thus EUROe will be one of the first stablecoins approved by EU-country with already-strict rules regarding risk management and user protection. This will lay good compatibility premises for upcoming previously discussed EU-MiCA regulation.
Clear rules on auditing and transparency play. In recent years these topics has been main burden for every organization or foundation who has been behind development of stablecoins. Stablecoin issuers have been times under scrutiny and investigations related to convince the public audience about their internal processes, risk management practices or proof-of-reserves backing their coins. From this perspective, Membrane Finance takes serious approach from day one by partnering with widely recognized big four auditing company KPMG to document and share all the necessary information to officials and public.
Potential and perfect timing to launch?
It’s been already 14 years since launch of Bitcoin blockchain. Now we are close to 10 years since launch of Ethereum and all the novel unheard of potential DeFi-space brought to as, both in good and bad. Removing intermediaries, structures, giving people the right to own their data and moving it freely from service to service. Adding extra layers of security such as zero-proof knowledge to reveal only facts one wants to reveal about themselves. All of this is cool.
However, like everything in todays’ interconnected world - one relies on other. Gold, stocks, real estate, crypto. Latest example of Silicon Valley Bank collapse resulting USDC depeg amidst worries of USD reserve existence, proofs again that not even novel financial engineering technology is immutable if something happens on global financial market.
Usability of stablecoins is important for adoption
Like all the crypto coins and digital assets - stablecoins have their challenges regarding usability like User Interface and Experience. Nevertheless, this is perhaps the most important point which has prevented many users to actually utilize stablecoins, besides the regulation clarity questions.
In a sense, in EUROe - there’s beauty in simplicity. Check the scenario below:
How to receive EUROe:
depositing fiat-euro into via bank transfer-rails generates equal amount of EUROe ERC20-compliant stablecoins which are registered on-chain and held in the users wallet.
How to convert EUROe back to regular fiat-euro:
Once initiated by user, burn-address is generated on-chain for EUROe which will “destroy” tokens and when this happens - it triggers fiat-euro deposit back to customers “traditional” bank account.
Most use cases haven’t changed for years
In the middle of all - day-to-day life goes on and there are still couple of facts which will be still valid today and in the future:
Average Joe doesn’t really care about all the finest technology, Polygon, Supernets or ZKs
Average Joe wants to receive salary in a format which is stable and has superb liquidity with fast remittance and can be assured that it is safe to use
Average Joe still wants to buy his (oat) milk from his local grocery store on Sunday evening 10 PM
Price of milk has to be steady as well - it cannot fluctuate 20 % on daily basis
To be adopted by masses, such commodity as stablecoin has to have common rule-playbook
Eventually regulated stablecoins will provide the rails from current legacy-state fiat to such a electronic financial solutions which serve todays’ world and its people with much more relevant purpose.
This is part of common-sense evolution - we are not paying for goods anymore using squirrel skins - times have changed.
Wrap-up and thoughts
EUROe has novel approach to be compatible with all three sides 1) DeFi 2) TradFi and 3) regulations. Portraying all this - the launch of EUROe is something very timely, latest lessons from mistakes taken into account (thinking about couple of last years) and definitely exciting to follow its’ adoption journey both in EU and outside over the next years. Team and fundamentals behind the EUROe are strong.
There are lots of opinions about slow decoupling in crypto/Web3 space, where Bitcoin is seen as “finite gold standard” and Decentralized Finance technology forming own separate reality as being day-to-day all-rounder to handle life-things.
As of today, looks like the latter will be adopted as a successor to current financial technology space (just guessing) within maybe a decade time. One thing’s for sure - all the latest financial engineering innovations are at the moment coming from DeFi-space. Who knows, perhaps stablecoins are good technologilly advanced proxies for real governmental CBDCs? Then, stablecoins could be comparable to 3.5G network technology that was marketed as 4G-technology at a times. More advanced but because of lack of legislation and adoption not quite there yet.
In the meantime you can follow stats on EUROe here.
Follow EUROe on twitter @euroemoney
Let me know in comments - what do you think about stablecoins and their future? Are they real or just proxies for CBDCs? 💱💳
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PS. Thoughts written here are my own opinions and should not be considered as a financial advice.