The On-Chain Euro: An Open Design Conversation Between Banks and the Builders Who'll Make It Real

Transcript

Good morning, everyone. Um, thank you very much for coming to this uh short talk on the Gnosis project. Um, I'm very happy to see a few friendly faces, but also a lot of new ones. Um, today I want to uh let you know a little bit about what we are thinking. Uh, my name is Ernesto. I am originally from El Salvador, but uh I've been working in Germany since 10 years. Uh, recently switched from a bank to Gnosis. I am head of strategy and DeFi. Uh, my background is actually also on DeFi, so I don't really consider myself a banker.

And what we are trying to do at Gnosis is basically to um issue an open uh design Euro stablecoin, um, backed by uh 12 banks. Uh, why? Um, because uh when you look at what's going on in DeFi today, you see that uh the Euro is basically invisible, right? So, uh you could say sure uh Circle has like 800 million TBL on their Euro C stablecoin, but if you compare it to the US dollar stablecoin, that's basically nothing, right? So, uh we think uh we as uh Europe should have a presence in the fastest growing uh economy in the world, which is the digital economy.

Um, the banks in our consortium all agreed that uh the world is going to move on chain. Uh, we think that uh in the future, you know, non-DeFi uh people, you know, normal people, uh will also start using on-chain services, but maybe they will not know about it uh because it's going to be underpinning, uh you know, their banking apps, the savings apps, and so on. So, if you believe that thesis, then obviously this is a huge problem if uh the Euro has basically zero presence, uh because this makes us very um you know, dependent from uh American uh power.

We have nothing against uh the US, of course, uh but we want to see a strong Europe, which means we also need to have a strong presence uh on DeFi. Um, why do we think that DeFi should even care about us? I mean, uh we are quite humble and we know that, you know, we are banks, so uh obviously there has to be a gap to be closed between us and uh the ecosystem. Um, when we talk at DeFi protocols and we have very open discussions with them, uh we mention always this concentration uh problem that uh you have basically too much USD presence, which means when Donald Trump has a bad day and decides to start a war somewhere, right? So, uh this becomes a an issue for the risk parameters of, for example, lending

protocols or, in general, you know, um DeFi protocols. So, we think it's in the best interest of uh the DeFi community as well to have an option other than the US dollar um to build up their economic models. Uh, so far we have heard good responses to this uh idea, uh and we hope that in the future even more DeFi protocols uh see the need or, you know, uh get access to to this uh for the Euro to actually have a chance

to be uh used in DeFi or in general in the digital ecosystem, it needs really deep um liquidity, which is why uh all of these banks are supporting us with this. Uh, we are going to launch, uh you know, with all major pairs. Obviously, ETH is one of them. And we think that uh by having this very uh deep liquidity, we can ensure that builders, you know, can deploy their own ideas on top of this. Uh, what does this mean? This means our token is uh it has compliance functions, of course.

It's an ERC-20F, so in principle anyone can use it, uh but obviously we have some compliance uh functions on top of it. Uh, so um it's as open as it can be while being compliant. Um, and this is where we think uh the demand is going to be in the beginning, so we are working with the biggest uh decentralized exchanges and also centralized exchanges in the world. Um, we're going to establish deep liquidity against the US dollar and also against ETH, uh wrapped Bitcoin, obviously, as well. And uh depending on how we see uh the ecosystem developing, we will also introduce even more pairs.

Um, we are going to have uh ultra-low slippage uh pools, special pools, uh on the major AMMs. Uh, we are talking about, uh you know, having facilities for RFQs or other prop AMM uh technologies, so that uh right from the start you could uh swap uh big amounts of, you know, USDC or whatever towards the Euro. Um, we're working with the major lending protocols as well, because we see demand there for institutional grade uh liquidity.

So, the US dollar to Euro carry trade is a very interesting proposition for many people. Um, and we are also optimizing lending vaults, uh you know, for isolated markets, so this means, for example, uh institutional tokenized assets can be used as collateral, and we think uh at least some banks in our consortium are going to start experimenting with this, um, because it's a very interesting idea to, you know, have a way for banks to kind of have an on-chain repo facility, um, which is kind of non-existent today. Um, we think uh DeFi as the engine for what we try to achieve. We don't think this is, you know, a side project. So, DeFi is very important for us. Uh, first, we want to have uh deep liquidity

on global exchanges, uh as I mentioned, because we think uh that's the that's going to be a big a distribution channel. Um, we are present in Asia. We are going to launch also in Latin America, uh in Africa, of course, uh because we also think uh there it makes it makes no sense for us to try to replace SEPA instant or other, you know, payment protocols in in Europe. We think the Euro demand is global, so that's why we're going a bit more aggressive into those markets. Uh, we're going to see liquidity at the centralized exchanges via market makers. Um, as I said, also some special pools for even deeper liquidity for, you know, uh institutional uh grade uh transactions.

Uh, we're going to activate on different uh lending protocols, um, as much as we can, of course. Um, we think uh there will be a time where you probably have small markets or limited collateral possibilities, but this is going to expand with it in the future. Um, we are also talking to some yield protocols uh in terms of using collateral uh tokenized collateral from our banks, or perhaps tokenized credit, or some other interesting uh products to provide yield, uh so native Euro yield. Um, this is going to be open to anyone, so I think it's quite an interesting thing for people who think the Euro might be more stable than other currencies, uh especially with what's going on in the world.

And then, uh we intend to bring institutional volume. So, as I mentioned, we think carry trades, uh Euro leverage facilities, and treasury diversification for corporates is going to be a big thing, but for that to happen, first we need to have deep global liquidity. And we think once we have these deeper integrations, then, you know, the banks and uh asset managers of the world will see that the Euro has a proven track record, it's useful, and we hope that they will start using um our stablecoin as well for their own uh treasury uh operations. So, DeFi is not an afterthought, uh it's kind of the way for us to build an ecosystem for the Euro.

Um, and uh we actually also think in terms of institutional DeFi. So, how can we integrate uh our banks, our asset managers into the ecosystem out there? We are not planning to, you know, launch our own protocols. We think it's much better to work with what's out there and try to bridge the gap between TradFi and DeFi. So, we see three possibilities for TradFi to, you know, leverage DeFi. One of them is, of course, the euro US dollar carry trade, leverage strategies for the euro treasury diversification, and hopefully there will be even more ideas out there in the future. These are the three ones that we are pushing right

now. And this is more or less the road map that we have. Uh once we achieve institutional familiarity, which is what I was describing previously, we see a few institutional use cases. So, one of them is cross-border payments. We have quite a few global banks in our consortium, and we think it will be quite interesting for them to move money between, you know, Asia, Europe, Africa, Latin America using a stable coin instead of the usual rails. They see this as quite a good opportunity to become even more efficient.

This is going to happen perhaps, well, I mean, they're going to launch on Ethereum mainnet. And we are talking to the Ethereum Foundation for, you know, solutions for privacy and also other institutional requirements that you may have for this. Then we have security settlement. There are some very interesting ideas here in Europe about, for example, having a digitally native sovereign debt, which will be super cool to have, right? Because then you can have a native reserve for the stable coin. You could have, for example, a sovereign bond that is natively issued on Ethereum or some other chain and have this as part of the treasury, which means then you have even more flexibility for redemptions, which is a bit of a challenge today

with how stable coins operate. And then finally, we see trade finance. Lots of corporates are asking us, "Okay, so how do I use this stable coin for, you know, all of my operations globally?" And for this, it also helps to have the banks because they can be the on-ramps in a global scale, which we think it's also quite a good USP to have as a newcomer stable coin, right? And so, we don't have to worry too much about this. And here is where we are today. So, we took about 2 years to prepare this launch because you can imagine how hard it is to sell this idea to banks.

So, it's been a lot of work onboarding them. We started with nine banks. As I said, we are now 12, and we hope, or we think, we will have a few more by the time we go live later this year. And in 2027, we will actually expand to more blockchains. So, we start in Ethereum mainnet for obvious reasons, but we also see the need for us to be present in other chains as well. And this is where we are in a discussion with the community and with the builders to kind of figure out, so where else should we have euro presence, you know, with deep liquidity and so on and so forth.

So, that's one of the points where we think there's going to be an interesting conversation between Qvalis and DeFi community. It's also a conversation we're having with our banks because some of them are thinking in terms of maybe more permissioned chains or maybe more privacy-oriented chains, which could be L2s, could be alt L1s, so a lot of different options out there. But there has to be a way for us to coordinate all of these, right? We cannot, you know, be everywhere at the same time. So, that's going to be a process that probably will take a few years to, you know, identify all the chains.

And uh our proposition, or why we are reaching out to DeFi, is, well, as I said, it's kind of the the the main bridge we see between TradFi and this new economy. So, we're looking forward to talk with builders to integrate in even more protocols. We're interested in decentralized exchanges, lending protocols, yield protocols. So, if you're building any any projects or protocols in this area, please feel free to reach out because we're very interested in that. We are also, obviously, interested in institutional participants. So, if you're a capital manager, treasurer, or financial institution, feel free to reach out because we think we have quite interesting propositions for that.

Market makers and LPs obviously also interesting. As much liquidity as we can provide via as many possible partners that we could find, it's going to be, I think, the key thing for our success. And finally, we are looking for people to help us with integration, payments, and settlement. Here, we are not only thinking about, you know, credit card settlement, but also, for example, mobile money and some other interesting ideas that there might be out there. So, if you have any, you know, friends or anyone else who is working on this, please do reach out.

Here's my contact information. As I said, please feel free to reach out whenever you you want, and I do think we have a little bit of time for for questions. So, if you have any, please feel free to to, you know, ask your question. And thank you for your time, by the way. >> [applause] >> Thank you. Can you talk about the reserve? Where do you invest the money?

Yeah, so MiCA is very concrete in where we can invest our reserve, which is, I think, it's a good thing to have this very strong regulatory framework. In the beginning, it's going to be 100% cash, and in the future, as we grow the ecosystem, we will diversify this. There are very strong regulations on what we can invest, so it has to be HQLA of the highest quality possible. It has to be euro-denominated, has to have, you know, very short redemption time, so a lot of specifications out there.

But we are in discussions with issuers of such HQLAs to integrate them into our reserve strategy. Can you comment on the efforts from the European Central Bank to create a stablecoin as well? So, our some crypto money. Not sure what they're doing. >> The the digital euro, you mean? Yes. Okay. Yeah, well, you have two variations, right? Because you have the wholesale CBDC, which is intended for interbank settlement, and then you have the retail digital euro, which is actually not going to be on chain, so it's a kind of off-chain product.

As I mentioned, I think that there are some complementary effects between both of them. So, wholesale CBDC, for example, is something that we see as very important for once the our stablecoin, or euro stablecoins in general, becomes becomes systemically relevant, it will be very interesting for us to have access to that facility so that you can have your treasury in in a native digital form. That's something that today is not possible yet, but we hope that we can have this conversation with the Central Bank as kind of a very interesting use case.

And then for the retail part, um well, it's quite interesting to see the Central Bank going directly towards the, you know, the citizens and offering a kind of a deposit facility for citizens. So, um from that point of view, we think the market will decide probably which is the best option. We think this competition is you know, it's out there, and we are just working for having a very good solution to what we see are, you know, real problems out there. And we hope the market will decide which which option is better. Okay, thank you.

Thank you very much for your presentation. I really like your open standard approach and that it's a consortium. But how do you see it with 19 other euro stablecoins currently being issued? So, one of the major prerequisites is, of course, deep liquidity, as you pointed out. So, do you see it as a challenge when everyone wants a piece of the cake? Or how do you see the future of your stablecoin? You know, we are happy, actually, that there are more stablecoins out there because you also need to defend the peg on chain, and for this you need even more assets that have the same exposition. So, for us, it's good to have other options out there. If you think in terms of how big our liquidity pools are going to be,

and if you think in terms of, let's say for example, a three pool and curve, or, you know, some kind of other pool on AMMs, if we were to take a very small stablecoin, they will probably going to pump their TVL like, you know, 100%. So, we are happy to see there are other strong options out there because we need we need strong partners for us to defend the peg of the euro on chain. So, in that regard, we are very happy to see this. Uh we do think it's going to consolidate a little bit. I mean, we're nowhere near what's going on with the US dollar. You have like 500 US stablecoins, right? So, we still have some room in in Europe for a little bit more.

But we think it's going to consolidate also a little bit. But for now, we are happy to have at least the option for, you know, for these pools as as well. If you will be 100% in cash, how will Qvalis make money? Well, we are not really here, I mean, and this is going to sound funny, right? But we are not really here for, you know, making to to make money. We see ourselves as a utility because, first of all, we believe we are enablers for what banks or the European financial ecosystem wants to achieve, which is to have a presence in the digital economy, right? So, the focus is not on profitability in the beginning. The

focus is on first building an ecosystem, building the liquidity, building, you know, the tooling and the infrastructure for banks and the financial industry to even have a presence at all in this in this uh in this market. And once that's done, as I said, we will then start diversifying. So, it's a matter of first, you know, having at least something that might be profitable before you even think about it, right? Because uh it makes no sense for us to to think that we will become, you know, super profitable right from the start.

We're not either, right? We are We are regulated. >> [laughter] >> We have Yeah, of course, it will be fun to launch in the U in El Salvador, right? And we could have interesting reserves. >> [laughter] >> By the way, I'm from El Salvador, so I'm very familiar with that, so. But no, European regulation is a bit stronger, so we don't really think we're going to become the next either. Uh there will be a little bit of money coming out, of course. According to our projections, actually, we might become profitable in 1 or 2 years.

And the design of Kivalesa is also to give as much dividends back to our shareholders, so our banks. Um because obviously they need to recover their investment. Um but that's not the focus today. The focus today is to build the ecosystem. Thank you. >> [applause]