Growth in Euro Stablecoins Spurs Dreams of Digital Forex Market

But challenges remain on financing and regulations.

AccessTimeIconJul 9, 2021 at 6:25 p.m. UTC
Updated May 9, 2023 at 3:21 a.m. UTC

Could foreign exchange markets (forex) end up on the digital rails? 

At the moment, cryptocurrency markets are a long way from supporting anything close to the $6 trillion-plus a day that changes hands every day in traditional foreign exchange. 

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  • But glimpses of recent growth in euro-backed stablecoins have some token issuers thinking of a future where digital versions of national currencies easily flow on blockchain-based markets between cryptocurrency exchanges and the fast-developing trading and lending platforms of decentralized finance (DeFi). 

    “It's hard to go a day without hearing someone within blockchain saying they wish there was a euro stablecoin,” Michael Richards, a member from Astral Money, a European market-focused crypto project powered by blockchain protocol Terra, said in an email to CoinDesk.

    The circulating supply of euro-pegged stablecoin EURS token has more than doubled this year to nearly 80 million from just about 30 million, based on data from Glassnode.

    The total circulating supply of Stasis' EURS token.
    The total circulating supply of Stasis' EURS token.

    EURS – which Stasis, its issuer, says is the oldest euro stablecoin project – features a token built on Ethereum’s ERC-20 standard claiming to be backed 1:1 by euros in the issuer’s accounts. The market capitalization of EURS sits at about $96 million.

    Such amounts are tiny compared with the market for U.S. dollar-pegged stablecoins led by tether (USDT), which now has more than $60 billion outstanding, and USDC (USDC), at about $26 billion. 

    Market cap of EURS versus USDC versus USDT.
    Market cap of EURS versus USDC versus USDT.

    But the ambitions are grand. 

    Forex is by far the largest financial market in the world, according to Investopedia, where trades take place on an over-the-counter (OTC) marketplace. It is also considered more opaque than other traditional financial markets, and large institutions tend to play a significant role in determining prices.

    “One of my biggest hopes for the crypto market is to disintermediate this forex market going forward because it’s one of the most untransparent and shady markets left in the whole financial market space,” Gregory Klumov, CEO and founder of Stasis, said. "There is no single exchange where say EUR/USD is traded.”

    According to Klumov, interest in euro-backed stablecoins – just as with U.S. dollar-pegged versions – took off last year as more institutional investors from traditional finance entered the crypto market.

    “There has been an anti-dollar narrative, which started last year after the United States started spending money like crazy, giving stimulus checks and all the rest of the anti-dollar measures,” Klumov said. That turned "attention to the second-biggest currency after the dollar, the euro.”

    The sharp growth of EURS since the beginning of this year in particular can be attributed to “a lagging penetration of crypto in general across Europe” compared with the U.S. or Asia, Klumov said.

    In June, Switzerland’s Sygnum Bank announced the launch of custody and trading services for a range of DeFi tokens, including aave, aragon, curve, maker, synthetic and uniswap. It also started helping institutional clients get staking rewards from Ethereum 2.0.

    “I think once the EUR-denominated DeFi springs up, there'll be a lot of people looking towards automation to take advantage of the forex opportunities rather than seeing shifts as a risk,” Richards said. “This is very much probably going to be a good early move for TradFi (traditional finance)."

    On the popular DeFi protocol Synthetix, which creates on-chain synthetic assets that track the value of real-world assets, synth sEUR (SEUR) is the No. 4 synthetic asset by market capitalization, just behind Synthetix’s own token Synthetix (SNX), synth sETH (SETH) and Synth sUSD (SUSD), according to data from DeFi Market Cap. Synth sEUR also contributes to 20% of Synthetix’s total debt pool for synthetic assets, behind only sUSD’s 34% and sETH’s 30%.

    “The demand for euro-pegged stablecoins – as with other currency denominated stablecoins – is in an interesting place in that USD stablecoins built up such a lead that the vast majority of total value captured within blockchain ecosystems is dominated around them, and most protocols are built with them specifically in mind,” Astral’s Richards said. “However, the European Union is one of the largest markets in the world by number of consumers.

    Too early to call

    But for the majority of the crypto market, it is still too early to determine whether euro-backed stablecoins will eventually grow as big as those backed by the U.S. dollars, partly because of concerns around regulations.

    As CoinDesk reported on Thursday, the EU has said that it will propose a new agency and rules to crack down on crypto-asset transfers, in responding to calls for tougher action fighting money laundering.

    “The coming EU regulation will be very strict for stablecoin issuers as well as providers of services on such stablecoins,” Faustine Fleuret, president and CEO at French crypto trade association ADAN, said. “It is likely that issuers will need to get authorized as credit institutions or e-money institutions [and] decentralized stablecoins will probably be forbidden.”

    Finding a bank partner in Europe that is willing to open accounts for crypto-related transactions poses another hurdle for many crypto companies, including stablecoin issuers, according to market participants.

    “Even if you have a company operating under a single jurisdictional law, the Virtual Financial Assets Act [in Malta], you have no banks who would be willing to open bank services for you,” Klumov said, citing  a negative interest rate environment across Europe.

    “In the whole EU, finding a bank partner is quite impossible,” Fleuret said. “Crypto companies can't even open bank accounts to develop their business or subscribe to payment or credit services. That is why it is not surprising that banks are not willing to be involved in stablecoin projects [for] keeping the collateral.”

    After all, despite the SEUR’s popularity on Synthetix, with a daily trading volume at merely $500,000, it will be a long way before crypto or DeFi can really challenge the traditional forex market.

    “From a forex perspective, Synthetix lacks liquidity on the SEUR/SUSD when EUR/USD pair has generally a volume of over $500 billion per day,” Jean-Baptiste Pavageau, a partner at Paris-based quantitative trading firm ExoAlpha, said. “The forex market has not entered DeFi yet, but we see some projects and protocols looking to take over the forex market opportunity.”


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