Disclosure: The opinions presented here are solely those of the author and do not reflect the opinions of the editorial team.
On February 25, the CEO of Tether (USDT), Paolo Ardoino, declared that “USDT is the most effective tool for maintaining and spreading US dollar dominance in emerging markets.” He noted that the company possesses over $115 billion in US Treasuries, making it the 18th largest holder worldwide. However, what stood out most in his remarks was not just the statistics but the ambition behind them: “I’ll leave it to you to determine what sort of competitor resorts to legal warfare against opponents instead of concentrating on developing superior products.”
In Europe, regulators have recently simplified the regulations surrounding stablecoins, facilitating their adoption throughout the region. The Markets in Crypto-Assets Regulation is fostering strong demand for stablecoins as a means for settlements. Europe now faces a critical chance to establish an economy revolving around a euro-pegged stablecoin.
Why are stablecoins crucial for the economy?
Stablecoins provide a simple solution for transactions and calculations. However, their importance for Europe goes beyond mere convenience; they offer governments the opportunity to boost public expenditure through debt issuance. Since stablecoins require full backing, their issuers typically acquire government securities and subsequently tokenize them.
Establishing a stablecoin ecosystem generates sustained interest in government bonds. Given Europe’s increasing need for defense funding, this presents a significant prospect: stablecoins could enable a greater debt burden while promoting the growth of private enterprises that, in turn, enhance demand for public bonds.
Consequently, embracing stablecoins will closely align with Europe’s readiness to expand its government bond market, thereby stabilizing its budget and reinforcing the euro’s position in global transactions.
Why is time of the essence?
The lifecycle of innovation tends to follow a predictable trajectory, indicating that the window to launch a euro-backed stablecoin is diminishing.
During the initial phase, the market identifies the most effective solutions. As the sector advances, dominant companies raise barriers to entry, increasing the costs associated with launching competing alternatives. Missing the first phase can render market entry economically impractical—similar to the astronomical investments required to start a new automotive company today.
The same principle applies to the blockchain realm. The early days of crypto, likened to a garage economy, are coming to an end, leading to the consolidation of power among major corporations. Soon, a few influential players will dominate, with Tether likely emerging as a contender on par with Apple.
Opportunities to create substantial businesses within the crypto landscape are rapidly diminishing. Organizations are emerging with liquidity levels that new entrants will struggle to match in the coming years. We are witnessing the closing moments of an open market—the train is departing, taking with it the last significant prospects.
The urgency is further intensified by geopolitical competition. If a stablecoin backed by the RMB gains popularity first, a euro-pegged stablecoin may find it difficult to secure its share of the international settlement market.
What has hindered EURT’s success?
Euro Tether (EURT) has struggled to gain momentum mainly due to liquidity issues, stemming from insufficient institutional interest. However, if European banks engage, the Eurozone’s share of cryptocurrency transactions could increase, positioning the euro as a significant entity in international settlements.
Tether’s share of the stablecoin market currently exceeds the dollar’s fiat market share by 1.5 times. This creates an opportunity: a euro-backed stablecoin could take a slice of the 30% market share available in international payments.
If executed effectively, the Eurozone could potentially inject around €20 billion into its economy by stimulating demand for European government bonds. Presently, Tether experiences a daily turnover of $100 billion—hence, a euro-pegged stablecoin could feasibly capture a fifth of that volume.
The significance of regulation
The MiCA regulation does not directly oversee European firms; rather, it establishes a framework for those capable of creating a euro-denominated stablecoin market. Within this context, European companies have strong incentives to adopt a euro-pegged stablecoin—lessening exchange rate risks, simplifying cross-border transactions, and lowering borrowing costs by driving demand for European government bonds.
The chances of success improve if leading EU banks and cryptocurrency firms come together to form a consortium to issue a new euro-backed stablecoin. Brighty is ready to participate in such an endeavor, but the success of this initiative depends on substantial players with deep liquidity committing to the project.
Importantly, any new stablecoin must be launched under new leadership rather than relying on existing issuers. Ultimately, those aiming to seize opportunities in this sector must create an entirely different digital currency—one they have direct control over. Only by taking such measures can the Euro stablecoin hope to win this race against time.