Stablecoins are no stranger to crypto investors, though this market is about to go through major changes. Euro stablecoins are on track to becoming a force to deal with, thanks to MiCAR and established players in TradFi. USD-based stablecoins will have to navigate the EU legal landscape to survive, with some already planning their exit. In this article, we’ll take you through the ins and outs of stablecoins and how Euro stablecoins represent an interesting investment opportunity for consumers across the world.
Stablecoins are cryptocurrencies whose value is pegged 1:1 to a fiat currency, such as the Euro, or a commodity, such as precious metals and oil. In other words, for one unit of currency or commodity, you can purchase one stablecoin. In practice, the market consists primarily of fiat-based stablecoins.
In some instances, stablecoins can be tied to another cryptocurrency through a special algorithm that controls the peg according to price fluctuation. These are called algorithmic stablecoins. Unlike fiat-based or commodity-based stablecoins, algorithmic-backed stablecoins rarely have a 1:1 peg, thanks to the volatility of crypto. Issuers of these stablecoins often maintain a higher peg, such as 2:1, to safeguard investors against sudden price decreases.
Apart from their stable price, fiat stablecoins attract investors because of the low entry level. Like other cryptocurrencies, fiat stablecoins are easily purchased using traditional money. They can be traded and staked on conventional exchanges, making them almost homogenous to any crypto. Nowadays, the market of stablecoins is dominated by two fiat-backed varieties: USD and Euro stablecoins.
Despite being a relatively new concept, stablecoins are gaining increasingly popular as a form of investment. This is due to some noteworthy benefits of investing in stablecoins.
Extremely low price fluctuations: Compared to other cryptocurrencies, stablecoins prices are 10 times less likely to experience major price fluctuations.
Fast transactions with low fees: As stablecoins exist on the blockchain, users can enjoy the speed and convenience of doing business on-chain. They can transfer funds within seconds, while enjoying rock-bottom transaction fees.
A possible bridge between TradFi and DeFi: As stablecoin can be considered traditional currencies represented on the blockchain, more institutions can benefit from fast transactions with low costs. In the long run, we can expect stablecoin to become more prevalent in everyday commercial transactions.
In April 2023, the European Parliament adopted Markets in Crypto-Assets regulations (MiCAR). Essentially, this is a turning point for the crypto market worldwide and for stablecoins in particular. MiCAR is the first-ever set of laws that provides more certainty and protection for crypto investors across the European Union. With articles such as the requirement of whitepapers and licenses to operate within the EU, MiCAR is bringing more reassurance for possible consumers of the crypto market.
For stablecoins, especially Euro-denominated ones, this could mean a new chapter of growth. Specifically, MiCAR obligates crypto issuers to register a legally recognized entity in the EU and comply with EU laws. This is a huge barrier for some issuers who are not in favor of navigating EU regulations. Tether, the issuer of USDT, has voiced its objection to MiCAR and will exit the EU market. OKX, one of the largest crypto exchanges in Europe, has delisted USDT.
Instead, we could be looking at a future where Euro stablecoins thrive and dominate the market. With more protection, users are less reserved in investing in crypto and stablecoins, boosting this 500 million market. Euro stablecoin issuers such as StablR (EURR) have made all the necessary preparations for MiCAR, which is set to come into full effect in July 2024.
Timing plays a big role in Euro stablecoin investment. Apart from MiCAR, a few other factors come to mind when assessing the investability of Euro stablecoins. Firstly, the stablecoin market has had some years to mature. Issuers are more established in projects and have increased their liquidity to appease doubts and speculations. With crypto being volatile, stablecoins protect funds from times of uncertainty, especially during high fluctuations. With new regulations being introduced, Euro stablecoin has a good chance of becoming more prominent and prevalent in the stablecoin market, a place once occupied by their USD-based counterparts.
Euro stablecoins are on the path to becoming the driving force of the digital finance market of Europe and the rest of the world. With new regulations and more established players, this cryptocurrency could be an interesting new investment avenue for people looking to enter the crypto market. Players like StablR EURR have been prepared for new laws, ensuring users are informed and protected against third-party risks. That’s why, in the future, we might even see a market dominated by Euro stablecoins.
