Can the Euro Compete Onchain?

Transcript

All right. Hi everyone. My name is Patrick Hansen. I'm a senior director for EU strategy and policy at Circle. For those who don't know Circle, Circle is a global financial technology company, a public public company since since last June and we're trying to build a global full-stack internet financial platform. So, beginning from our digital asset issuance, USDC, Euro C, probably most of you folks know Circle from that angle to the application layer building CPN, Circle payments network, stable effects and other products on top of these digital assets to the underlying settlement infrastructure. So, that's what we're trying to do at Circle. I'm primarily, you know, taking care of our

European regulatory setup and business over here and that's what I also want to focus on in in today's, you know, next 15 minutes presentation. I want to try and answer the question can the euro compete on chain? And it's actually quite a continuation of my previous presentations at ECC at 2024 and at 2023 where I looked at the growth of nascent euro stable coins and then ultimately MiCA as a catalyst for for the European crypto landscape. And now two years later, we can kind of take stock of both my predictions that I made two or three years ago and also where the market is today.

All right, let's dive in. Can the euro compete on chain? What's What's the context of this question? Like what what's the baseline? And I think that's something that most of you are already aware of. The euro is a global powerhouse in traditional finance. It averages roughly 20% across verticals when it comes to foreign exchange reserves, when it comes to international swift payments or international deposits. So, it's really by far the largest fiat currency behind the US dollar. It's way way bigger than any other non-US dollar currency in traditional financial markets.

And then you contrast that with the crypto markets, right? That's the second hand side here and I think I kept it deliberately small because there's just no red color to find on on on that chart, right? In in crypto markets, the stable coin market is by now 300 billion strong and there's only 0.0% of that that is euro denominated. So, global powerhouse, very relevant in tradfi but almost insignificant at this stage in crypto. And so, the question that I'm that we're trying to answer and I think most of you are wondering about is will that change, right? And spoiler alert, in the next 15 minutes what I would like to cover is why I believe that the euro can compete on chain. Why I think that

MiCA that entered into application 1 and 1/2 years ago for stable coins was a catalyst, will be a catalyst and really a turning point and that what the remaining barriers are going forward. And I I mean, I listed them here. I think it it starts and ends really with liquidity and distribution. For real estate, people tend to say, you know, location, location, location. I always say for stable coins, it's really liquidity liquidity liquidity. And coming back to the first point why I think MiCA is the catalyst, I want to give, you know, you guys an overview of where we are today.

MiCA entered into application in at the end of June 2024 for stable coins that are regulated as e-money tokens EMTs under MiCA. So, a single fiat pegged stable coin. And by now, so almost two years later, what we have is a landscape of roughly 20 licensed e-money token issuers across Europe that issue a whole bunch of stable coins but most of them, so roughly 17 of them are actually euro denominated. You can see some of the issuers here.

There's a wide variety of issuers. Banks are among them right here in France, Societe Generale or Oddo in Belgium, Banking Circle, non-bank e-money institutions are among those issuers like like we are, Circle regulated as an electronic money institution in France or or Monerium and others. I know there are many present here at ECC. Then there are payments focused enterprises here. So, there's a wide array of issuers and there's a wide array of issuance models. So, under MiCA, just one example, Oddo, for example, that French bank they're issuing their EMT but they're not backing it with a segregated reserve. They're really backing it with their entire balance sheet. That's something that's possible under MiCA, which is not possible, just as one example, under genius in the

upcoming US rules. And so, what what I want you to take away from this slide is really two things. One is it's not the lack of options and offerings, right? By by now, we have almost 20 euro stable coins that are out there, different issuers, different models. We can't really complain about the lack of options. There are enough out there. And then the second takeaway is really the institutionalization of the market and I think that's where people tend to agree the future growth will come from. S&P Global Ratings projects, you know, in their upper bound scenario that the euro stable coin market will reach 1.1 trillion in a couple of years.

The baseline scenario is closer to 500 billion, but even that would be multiple thousand X from where we are today. And they're all citing MiCA as the key catalyst for that. So, to some extent MiCA is working as intended and when I was here two years ago, I actually shared a few, you know, predictions. Um I think it's safe to say we're at least trending towards, you know, these predictions coming into place. I I said euro stable coins will 5X. We're probably close to that from 250 million. I think we're just under a billion in euro stable coins.

A lot of consolidation I predicted and that's what we're seeing, right? Both international players came to Europe, bought some e-money institutions like Paxos did with Membrane in Finland, but also French players acquired others, right? Schumann bought here an EMI and launched their stable coin. Same for the crypto asset service provider market where Robinhood bought Bitstamp and others. If you look at the market today and how many registered players there were two years ago, it it has consolidated by by a ton. And the institutionalization, I think, is is undeniable with more and more banks entering the space. There's even a bank consortium on the horizon, 12 banks that will launch a euro stable coin. And interestingly enough, they're not launching a tokenized deposit, which they could do as a bank, right? But

they're really launching that e-money token, which I think is a is a strong signal. And then the last point, which I believe will be a huge catalyst for growth in the future, is really the tokenization of traditional capital markets. That is something that is nascent today, but already live. You have what is called DLT pilot regimes across Europe. Here in France, there's a startup called Lize, great great founder, great guy. In Germany, there's 21X as one example where where folks already today can trade tokenized money market funds and other securities with with stable coins.

And those volumes are obviously still nascent, still relatively low but there's a very very strong push by by the entire capital markets industry to get there. And so, with MiCA as the catalyst, the question is what what does success look like for euro stable coins? And and we at Circle we're really doubling down on on Euro C, our euro denominated product. Have been doing that. I'm personally very focused on that. And we have seen over the last 1 and 1/2 years very promising growth for our stable coin Euro C or EURC.

Um So, when we announced here in France, actually in Paris on the 1st of July 2024 that we would issue it now from our French e-money institution, 100% issued and reserved here in France, compliant with the rules, we were at 35 million of market cap. We grew over the last 1 and 1/2 two years to over 360 roughly today. So, that's an over 10X growth. We captured more than 50% of the euro stable coin market share. And Euro C today is really the only euro stable coin that is among the top 25 or top 50 stable coins by by market cap.

So, it's the at least at this stage is the undeniable leader with when it comes to euro stable coins. And what we're trying to do is to build upon that and and to double down on that across different verticals. So, where we see euro stable coins being used today might be very different where you see stable coins will be used in the future. Well, today what we're building upon and there's a ton of my colleagues that are here today at ECC is we're really focusing on the baseline. And the baseline is liquidity and distribution in crypto markets. And if you look at, you know, the standard exchanges here in Europe today, both the international ones and the European ones all of them almost at this

point list and trade Euro C. So, the Coinbases of the world, the Krakens, the Bitstamps, Bitpandas, Bitbavos and others. And that has worked, it has been ongoing for over two years. And by now, Euro C is by far the most widely listed and distributed euro stable coins among those. And an interesting use cases for Euro C within those platforms is the usage as collateral and margin, for example, for futures, right? This is something where dollar stable coins have been super strong in the past and where we foresee a strong growth. So, if you want to try it out, for example, on Kraken, you can already use Euro C as a fiat cash equivalent collateral and margin asset for these trades, which is

great. And then probably the the most interesting part for the audience at ECC is really DeFi. Um so there's a ton of DEX protocols that have listed Euro C pairs, Uniswap, Aerodrome, and others. And lending borrowing protocols. And this is really where I personally think that will be the highest, you know, growth level over the next 12 to 18 months. Because what you see in these pools, you can check them out. It's on Camino, for example, on Aave, on Morpho. Is that the the lending rates that you get for Euro C are already higher than the standard euro-based interest rate that you would get from the ECB or that you would get from your neo broker or banking app,

right? And so this is something that as who knows, interest rates further decline, that might be a strong incentive for, for example, neo banks, brokers, fintechs in Europe to provide that pathway to their customers to tap into that DeFi native yield. Um so I think DeFi, highly encourage everyone to check that out. I think this is where we'll see a ton of growth over the next 12 months. And this is, by the way, these are all things that are already being built upon today, that are being used, that are live.

Um feel free to check them out. And then the other two verticals that are listed here, and obviously there are many others, but that we're particularly excited about are payments and capital markets. When it comes to payments, I think it's it's safe to say that we're in Europe when it comes to cross-border treasury management or supplier payments, that will natively be done with locally denominated currencies, right? And so the same way that a French or German corporation will use, you know, dollars and euros and pounds for different supplier payments, they will do the same when it comes to on-chain corporate treasury. And so this is something where we're seeing a lot of demand, including by some of the largest corporations in Europe. We're

integrating Euro C into our Circle Payments Network, where businesses can provide cross-border payments powered by stablecoins. We're integrating into Stable FX, where businesses can get quotes for essentially on-chain FX, which are usually much more competitive that that, you know, traditional FX rates. And then last but not least, we're also working with some of the largest payment service providers in the world to provide Euro C powered rails. One example, Visa has integrated Euro C as the first euro stablecoin um to power, for example, settlement between Visa financial institutions. So um their their participating banks.

And that's something that as crypto grows out of the pure crypto play and integrates further with traditional finance and traditional payments, that's where we see a lot of euro denominated stablecoin growth to come from. And then the third bullet point, that's probably something that is still a little bit further away, but something for the next couple of years for sure, are really the tokenization of capital markets. There's a strong push in the European Union now with what is called the markets integration package to build on on-chain capital markets. Um the EU EU DLT pilot regimes that I mentioned are the the the the first test cases for that. But ultimately, the entire capital markets at some point will move on-chain to to to benefit from from from

the added values that blockchain tokenization offers here, which is, as you all know, 24/7 settlement, liquidity access etc. And this is also, by the way, capital markets where S&P in their earlier prediction, which is incredibly bullish, they see the highest growth in 2030 coming from, which is, you know, capital markets. So these are where we currently see uh Euro C being, you know, requested, demanded. We've seen strong growth of of Euro C's share over the last couple of months, and we are really doubling down on all of these. Because ultimately, what we think and what we've seen for dollars is that you need to build the foundation first,

right? The liquidity, the distribution through the first point, in order for the other for the other verticals to pick up the same assets. We personally, I don't think you can build euro stablecoins the other way around. I don't think you can start from the point three and move, you know, down downwards to one. I think you have to start from the bottom-up demand and liquidity uh where users are today. Um and so when it comes to, you know, the question of whether euro stablecoins can compete on-chain, I think there's both tailwinds and constraints. Tailwinds, I mentioned some of these, MiCA, institutional adoption, tokenization. There's others, right? AI and agentic payments. Uh as those come into play, I I think everyone expects

those AI agentic payments in the euro area to be euro denominated. Um and others institutionalization regionalization of DeFi. Once people start borrowing from DeFi to pay whatever their car loans or their mortgage payments or whatever, it will have to be in in euros, right? And that's, I think, a development that everyone foresees happening. Strong euro, also another driver. I don't know how many of you got burned over the last 24 months lending in non-euro currencies in in DeFi is one example. And then the constraints, it's really what I mentioned, liquidity, liquidity, liquidity. That's the tough road ahead that needs to be built. We're quite, you know, um we're quite pumped by recent Euro C growth and trading volumes across these exchanges.

Um and then additionally, there's a few regulatory hurdles I think we need to over come. I don't want you to board or you with those. But businesses that want to provide stablecoin services in the EU today, for example, custody transfers, they will need two different licenses, MiCA and PSD. And that's a duplication I think that needs to be solved going forward for the EU because it hampers euro stablecoin growth. Political support is a big one, right? In the past, ECB and others really pointed towards the euro CBDC from the ECB being the solution for everything. That's slowly but surely changing towards a messaging and a narrative where these different types of assets coexist. And that's very important for the overall business climate in the space right?

>> [snorts] >> And so ultimately, when it comes to the question, can euro stablecoins compete on-chain, my personal takeaway, and it has been the same over the last, you know, one or two years, is it will be able to compete on-chain. It will not be a hockey stick overnight, you know, growth development over, you know, a couple of weeks or months. But it will be constant, steady growth over the next 24, three, four, five years as these markets integrate further with traditional finance. Um and so what we do at Circle is we build on recent growth for Euro C, and we're really trying to double down on the things that have worked in the past, right? We want to make Euro C the most liquid and widely distributed euro

stablecoin that is competitive with some of the largest dollar stablecoins out there. Um obviously, we build all of that on a compliant infrastructure. We're integrating that into our own apps and and settlement infrastructures, so CPN I mentioned, Stable FX, and others. And we're quite hopeful that based on the numbers we're seeing on-chain, so you see here, a year ago we had roughly 30k holders of Euro C, now we're almost at 200k. That slowly but surely we're seeing those liquidity network effects for Euro C coming into play.

And and obviously, we're quite, you know, pumped about what's ahead for the euro. We're doubling down on Euro C. We want to make it, you know, the default euro on-chain. And and I invite everyone, be it, you know, retail folks here that want to just try it out and trade or lend it in DeFi, or product developers out there that are as pumped as I am about the future of the euro on-chain to just integrate it. Feel free to reach out to me. There's a number of colleagues here out there that um could could help you with those use cases. And so I will leave you with saying, you know let's let's make the euro win on-chain as well.

Uh and with that, I can open for a few questions. Thank you. >> [applause] >> Uh Thanks. Um you said it's interesting that the Fivalis, this consortium, is going for the EMT and not the balance sheet backed one. Why is this interesting? Why is it good? So two different points here. First of all, they're going for an e-money token and not a tokenized deposit.

And then the second point is they're going for a fully backed segregated e-money token and not a balance sheet backed one, right? And I think the reason why even the banks tend to do e-money tokens and not tokenized deposits is because they're inherently different legal assets. So a a deposit is a constant, ongoing relationship that you have legally and contractually with a bank. So you cannot just use it as a bearer asset and send it out. And that is, in my opinion, the inherent value proposition of an e-money token, which is a bearer asset, right? I can hold it in my non-custodial wallet and send it to all of you guys without any of you having the need to be contractual customers of that bank.

And so by default, I think that these deposits asset will have a much more constrained perimeter because they are always permissioned in that network of contractual clients of the bank. I think that's the the the most important point. There are a few others, but that that's a key one, I think. Hi, thank you for the presentation. Um I have a question regarding Euro C status in Aave because uh a few months ago it was uh the the LTV was actually uh zero. It became zero basically overnight for your C the your C token, uh which

actually affected me personally, because I was using your C. Um so, are you guys working with Ave to to get the the LTV back to where it was? Or, you know, what happened and uh will this be corrected, because Ave obviously the biggest lending market in in DeFi. So, yeah. Thank you. Thank you. Yeah, I I mean I'm personally not involved in that partnership. I know that our team is working on that. Ave is obviously a very big important partner of ours. Ultimately, that's supply and demand, right, for these pools.

Um what I can say is that we see a big future for euro-denominated uh lending and borrowing pools, and we want to make those as liquid and uh as attractive as possible. Um so TBD. Happy to connect you also with some of the guys that work on these partnerships here directly. But indeed, I I I think uh liquidity in these DeFi lending and borrow borrowing pools will only grow from now. That's what I personally think. I think I need to stop, unfortunately.

Um but happy to connect uh behind the scenes. Thank you very much. >> [applause] >> Do you have something to I think that's it.