Key facts:
Patrick Hansen of Unstoppable DeFi sees the MiCA bill as a stumbling block.
The analyst sees a European stablecoin as urgent to avoid the influence of the United States.
Patrick Hansen, from the blockchain firm Unstoppable DeFi, revealed the reasons why Europe has not developed its own stable currency or stablecoin, with which the region could avoid, among other things, dependence on the United States in regulatory matters.
In the analyst’s opinion, the main reason why a stablecoin regulated by the European Union has not been launched, it is because of el negative interest rate of -0.5% established for bank deposits in the Central Bank of Europe (ECB).
Hansen gives as an example a hypothetical case in which a stablecoin like USD Coin (USDC) from the company Circle is developed but in Europe. “Imagine a EURC with a ~USDC market cap of €50bn. Circle would have to pay 250 million euros of interest each year on the reserves of euros, ”he explained referring to the current regulations.
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In this sense, he considers “it is difficult to build a sustainable and profitable business model” if these amounts have to be paid. Thereto the regulations that the Markets bill for cryptographic assets will contemplate are added (MiCA), currently under development. This rule proposes a regulatory framework for the cryptocurrency industry through a licensing regime for anyone who wants to issue a stablecoin in the eurozone, with a single regulation for member states, as reported by CriptoNoticias.
That is why Hansen believes that “it is not surprising that no major company is currently issuing a EUR-based stablecoin,” he noted in a Twitter thread on April 17.
Hansen also argues that another part of the problem is that stablecoins whose value is pegged to the US dollar are experiencing a massive network effect for its use in exchanges, merchants, retail, decentralized finance (DeFi), and corporate adoption. The stable cryptocurrencies to which the analyst refers are headed by USDC, USD Tether (USDT) or TerraUSD (UST). The latter is already the third with the highest accumulated value in the market.
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The analyst also mentioned stablecoin company Angle Protocol, a European DeFi company that developed a EUR-based stablecoin protocol. “He’s getting some traction, but not fast enough. And some, especially in traditional finance, are always going to prefer regulated, reserve-backed stablecoins,” Hansen said.
Hansen concluded by explaining that everything previously exposed does “collateral damage”, which is “often ignored by the ECB’s monetary policy in the European crypto space”.
“As long as stablecoin issuers are required to hold 1-1 cash and cash-like assets in reserve and negative interest rates prevail, this is unlikely to change,” he added.
Hansen is not alone in his analysis
Hansen’s analysis is not the only one that points in the same direction. Last March, Philipp Sandner, economist and director of the Frankfurt School Blockchain Center in Germany, said what Europe lags behind in this regard compared to other regions.
This is because it lacks a significant number of stablecoins and because Europe is making slow progress on its initiative to launch a central bank digital currency (CBDC), Sandner said.
“I think we will see the ECB accelerate its development [de una moneda digital] because everyone is pressuring him to speed it up (…) but it is a large-scale project, “he added.
Additionally, Sadner recalled how since 2019 regulators began to reject stablecoins after the launch of Libra of Facebook (later named Meta and sold to another company). “The economic ministers of Germany, France and other countries are very happy that this project has finally left the continent,” he explained.
For Europe it is an urgency to create a stablecoin
Hansen has followed the development of European policies for the cryptocurrency industry, previously explaining why there are no ideal conditions to launch a European stablecoin, but he does believe that this type of cryptocurrency should be developed.
The reasons are three and made them known last November. The first is that DeFi users from the European Union are constantly exposed to currency risks.
The second is that the stronger the US dollar stablecoins, the the greater the political influence of the United States, since they regulate and supervise USDC, USDT, among others. “The EU should not want future stablecoin-based payment systems to become as politicized as current FIAT systems.”
Finally, Hansen believes that the effectiveness of the ECB’s monetary policy could be affected. “If more and more (financial/economic) activity in the EU is denominated in USD (individuals and companies directly borrowing USD-stablecoins on DeFi markets), that undermines the effectiveness of the ECB’s monetary policy,” he stressed.