US crypto firm lists euro-backed stablecoin on Coinbase

Euro Coin crypto token
Euro Coin, a new euro-backed stablecoin – a crypto token – issued by USDC provider Circle, is to be listed on the Coinbase cryptocurrency exchange. Photo: Chesnot/Getty

Euro Coin (EUROC-USD), a new euro-backed stablecoin issued by USDC (USDC-USD) provider Circle, is to be listed on the Coinbase (COIN) cryptocurrency exchange on Wednesday.

The new token will be deployed on the Ethereum network (ETH-USD) and backed by euro-denominated reserves held by US regulated financial entities, such as San Diego-based Silvergate Bank.

Stablecoins such as USDC and USDT (USDT-USD), are paired one-to-one with the dollar and are meant to provide a relatively non-volatile parking space for investor profits as most cryptocurrencies can be traded for them.

Euro Coin will be backed one-to-one by the euro (EURUSD=X). It's a crypto token not to be confused with actual Euro currency of 20 EU countries that are members of the European Economic and Monetary Union, informally known as eurozone.

The new stablecoin goes by the EUROC ticker, and joins other euro-backed stablecoins, such as the Tether issued EURt (EURT-USD). Tether is the also the issuer of the largest dollar-pegged stablecoin USDT.

Read more: Crypto: Stablecoins won't meet global standards, warns Financial Stability Board

"Designed for stability, Euro Coin is 100% backed by euros held in euro-denominated banking accounts so that it’s always redeemable 1:1 for euros," Circle said.

A widely used euro stablecoin held in the US could pose a problem for the EU's ambitions to roll out its own central bank digital currency (CBDC). Circle's euro-stablecoin is entirely out of the control of European monetary management, being allocated and regulated by the US.

Euro Coin backed by full reserves held by US regulated entities

Circle has siad that the Euro Coin will be regulated by standards set out by the American Institute of Certified Public Accountants (AICPA).

The company claims that the stablecoin's euro reserves will be greater than the amount in circulation each month.

Circle is headquartered in Boston and has a close relationship with US regulators. It claims on its website: "Circle works closely with US congressional leaders to align the open values of web3 with the traditional financial system and help create our harmonious, interconnected future."

Read more: What is the digital pound and when can you expect it?

In 2022, the firm's co-founder Jeremy Allaire told US Congress: “We have aspired to walk through the front door on emerging policy and regulatory priorities, always with a focus on how to appropriately spur competitiveness, user protection and regulatory clarity in the emerging digital assets economy."

A widely used euro stablecoin held in the US could pose a problem for the EU's ambitions to roll out its own central bank digital currency (CBDC). Circle's euro stablecoin is entirely out of the control of European monetary management, being alocated and regulated by the US.

The European Union is currently developing a CBDC for the eurozone economies, which will be run directly from the European Central Bank (ECB).

This differs from euro-backed stablecoins which are issued by third parties in jurisdictions outside of Europe, such as Hong Kong for Tether's euro stablecoin, and the US for Euro Coin.

In 2022 the ECB released a paper warning of the "potential risks to financial stability stemming from stablecoins".

"The speed and cost of stablecoin transactions, as well as their redemption terms and conditions, fall short of what is required of practical means of payment for the real economy," the paper said.

It added that stablecoins need to be brought under EU's the proposed Markets in Crypto-Assets Regulation (MiCA) Regulation, the EU's bloc-wide effort to bring stablecoins and cryptoassets under regulatory control.

The ECB said that European banks and financial institutions may also be interested in issuing stablecoins or offering related services once the MiCA Regulation enters into force in 2023.

Read more: Crypto: Will UK banks adopt CBDCs and stablecoins?

Head of fintech at the Bank of England Varun Paul told Yahoo Finance UK that commercial banks in the UK will soon begin issuing their own pound-backed stablecoins.

In both these cases the issuing entity will be a commercial bank that has a direct relationship with a national central bank.

Adrian Ip, managing director of Aquis exchange, spoke about challenges of any third-party entity issuing a fiat currency backed stablecoin, such as Circle's Euro Coin.

"Any private company attempting to run a stablecoin based on a fiat currency without official endorsement will always struggle long-term somewhat for credibility. A private company can always take decisions which can be opaque to the general market and although it might have high standards to begin with these can slip. It's much harder for central banks to change standards without government and public scrutiny.

"I think most major global central banks will introduce their own digital currencies which will ultimately supplant independent stable coins simply due to mass market adoption. In the meantime they'll look to secure against consumer detriment and maintain control where possible."

Coinbase to list Euro Coin

Coinbase announced its listing of Euro Coin on Twitter. It is expected to be made available on the exchange 9am US Pacific Time (PST) on Wednesday.

The coin will be listed on the Ethereum network as an ERC-20 token and will launch under the exchange’s “experimental asset” label.

Circle is backed by Fidelity and BlackRock

Circle also has a close relationship with US-based fund managers and investment management companies such as BlackRock (BLK), Fidelity Management and Research and Fin Capital.

In April 2022, Circle entered an agreement for a $400m funding round, with fund manager Fidelity as one of the major backers.

Also in 2022, the world's largest investment management company BlackRock, with $10tn in assets, entered a strategic partnership with Circle to be its primary asset manager of USDC cash reserves and explore capital market applications for its stablecoin.

Allaire told TechCrunch: “Our broader strategic partnership with BlackRock, will allow us to explore new use cases where USDC may be an efficient resource in the financial services value chain."

EU plans capital requirements for institutions to hold crypto assets

The European Commission (EC) has urged the EU's European Banking Authority to quickly adopt strict capital standards for financial institutions that hold crypto assets, while simultaneously drafting banking laws.

It said capital requirements for institutions holding crypto assets, including bitcoin (BTC-USD) and stablecoins, should be established by January 2025.

Read more: Crypto prices surge on China's rate rise halt

The new law will provide guidance for financial institutions handling crypto assets.

"For the time being, banks have very low crypto-asset exposures and only a limited involvement in providing crypto-asset-related services," the EC said in an informal discussion paper seen by Reuters.

"Banks have expressed interest in trading crypto-assets on behalf of their clients and to provide crypto-assets-related services."

Watch: Fireblocks director and former fintech head of Bank of England on CBDCs and stablecoins