Why stablecoin matters: a true currency of the XXI century.

STASIS company opinion on Digital Euro research and development

Read the detailed statement on European CBDC R&D from the team behind the largest euro-backed stablecoin!

Following the inquiry from the European Central Bank on the topic of Digital Euro R&D public consultation, we decided to publish an official statement, available for everyone.

STASIS has been consulting governments for a few years, and our positive image is a benchmark for many other companies to follow. Having successfully launched back in 2018 what is now the largest euro-backed digital asset issued on top of a private blockchain, our team successfully pioneered the stablecoin self-regulation concept ever since.

We expect that the forthcoming advances from EU-Zone regulators and banks in this direction, including the Bank of England, will require such expertise. The ongoing debates in the CBDC field require the leaders of the stablecoin segment to act, and we hope that our solid experience in multiple fields will help make decisions that can shape the European digital asset market landscape, as well as set the best industry standards for innovations in the finance and payments sector.

INTRODUCTION

Technology has always been one of the main drivers that boosted social and economic changes. It goes without saying that the cryptocurrency market is advancing at an astonishing rate. Digital currencies, assets that may have raised controversial questions a few years ago, are now experiencing a huge demand not only from tech-savvy users but from mainstream clients, major global companies, and institutional investors.

A poll recently held amongst members of the European Payments Council indicates that 90% of the members believe that blockchain will change the payment industry by 2025. This technology will directly link the customer and producer and the rising trend of such solutions implementation reflects what is happening in the on-demand economy.

At the same time, negative interest rates create natural obstacles for banks to expand operations, losing the commercial motivation to enhance their products’ payment sector. The STASIS team track record in digital asset institutionalization dates back to 2012 with the world’s first bitcoin fund product.

Once launched, it became evident that the market for something that will be later called “stablecoins” has significant potential. We agree with the opinion that the “stablecoin” definition doesn’t reflect the essence of the product.

Our team’s combination of financial, regulatory, and technical experience has helped financial regulators to climb the learning curve for the EU continent and beyond.

Many tech-savvy professionals saw a similar opportunity — since 2017, more than 200 teams worldwide have announced developments of cryptocurrency projects backed by assets such as currencies or precious metals to put volatility factors out of the equation. Still, as of the date of writing, very few projects delivered a working product.

OUR EXPERIENCE

EURS is the largest euro-backed digital asset, combining the benefits of the world’s second most traded currency with the transparency, immutability, and efficiency of the Ethereum blockchain. The project team has been at the forefront of stablecoin operations and the EU zone’s regulatory landscape, developing the EURS cryptocurrency with a strong focus on compliance since day one.

We thought about the launch format years before the actual start of operations. Having carefully analyzed the existing regulations in different world countries, we’ve published our “Digital Regulation” book twice — in 2018 and 2019, respectively. We have researched the existing legal frameworks, regulation strategies approach, and plans to obtain an understanding of typical problems and conflicts that governments face, national, and cultural features that may be important in this context. The content was tailored to state-level decision-makers, monetary regulators and was enriched with reference data on the blockchain and cryptocurrencies: their design, mechanics, features, purposes, risks, and benefits. With collaboration with Turkish authorities, it was recently translated into the local language. Moreover, UCLA (University of California, Los Angeles) issued a book featuring the STASIS experience in September 2020.

In the situation where clear requirements for the initial launch were absent, the combined team’s track record, expertise, and full-scale market research became the right combination that helped to reach our goal. Our self-regulation approach found a positive response with the higher echelons of power and intersected with current Maltese legislation.

Therefore, having invited us initially as a local consultant, some of our findings were used to shape the Malta Virtual Financial Asset Act.

Ever since, our team has been recommended as the approved expert on the edge of the financial technologies, markets, and blockchain. The regulatory question has always been addressed with an extreme level of dedication.

STASIS EURS currently stands as the largest non-USD digital asset on the market, having proudly launched from an EU-member state, serving as a bridge between decentralized finance and the off-chain market for the European Union. Our company has successfully operated in a self-regulated form for more than three years, being the only big four-audited issuer and providing ultimate transparency of our operations.

We have been contacted by companies who were looking to:

1. Move cross-border transactions outside of the banking system to the internal treasury;

2. Create an independently verified settlement center for intangible assets for internal use;

3. Trade digital assets and report taxes easily in balance sheet currency for EU customers.

We are confident in our approach to regulating such businesses and will be happy to participate in the creation of projects, referring to our transparency and experience.

SUMMARY

Observing the digital asset market development over the years, we became convinced that the digital euro market has to be competitive and not oligopolized.

The era of negative interest rates and sluggish economic growth disincentivizes banking institutions to onboard and service new clients as there is no business model for every additional customer involved in the current state of things. At the same time, collateralized stablecoin issuance does neither increase leverage in the banking sector nor influence money supply, containing risks by providing an open and transparent ledger of transactions on top of the frequently audited balance sheet.

Moreover, our team is convinced that every issued DLT asset (regardless of whether MIFID regulates it or not) should have a cash equivalent in the same environment to have similar settlement characteristics. STASIS company firmly believes that private companies can fill that role to compete for the fungibility of their stablecoin.

THE BENEFITS

1. Provides access to a new sector of the on-demand economy

By leveraging the opportunity to add stablecoin to traditional payment channels, merchants would be able to accept payments over the Internet conveniently to enjoy instant settlement. The advent of the Web 3.0 economy requires the implementation of such solutions.

2. Widens EUR convertibility beyond EU borders

Acquiring and remittance products become accessible from non-custodial applications that utilize the benefits of euro currency to disrupt the dollar monopoly on the global market. Thus, making salaries available in EURS extends the practical use of stablecoins beyond cryptocurrency trading and allows it’s inclusion into regular people’s everyday financial lives.

3. Transaction transparency allows tracing all transfers to the origin

Blockchain is the perfect definition of trust quantification, and its firm ability to add ultimate transparency to processes and operations can be significant leverage when it comes to providing the data that cannot be tampered with or forged and is timestamped in the distributed ledger.

4. AMLD5 is not only unimpaired but becomes much easier to enforce

Various entities voice concerns about money laundering activities happening in the digital assets market. Different institutions globally still account for some transactions in crypto accounts as money laundering. Abundant tools and technology to conduct surveillance and advanced analysis as public blockchain provide an immutable ledger of every transaction in existence.

Numerous research conducted in this area over the last few years proves that despite many institutions still seeing cryptocurrencies as an unregulated territory, traditional banking institutions pose a much greater risk for money laundering activities.

Moreover, it’s too early to talk about the severe danger coming from such activities in crypto. While not denying it, it’s worthwhile to acknowledge the rotten underbelly and shadow activity of many financial institutions.

5. Opens up a market for new DLT assets issuance

Increases the European financial market’s attractiveness as a funding source: options to purchase capital bonds and separating MIFID paper issuers from settlement currency is undeniably a perfect leverage for market development.

THE DOWNSIDES

1. Multi-currency baskets are not relevant for the consumers

People have a strong preference for a unit of account correlated with balance sheet currency. Most of the existing customers of the EU are eager to experiment with well-known assets like Bitcoin or Ethereum and decide to start with euro stablecoin as it’s free of the burden of harsh volatility.

2. The current E-money directive is unsuitable for a stablecoin issuer

It creates an obstacle layer for business model development. Meanwhile, EURS is purchased by identified accredited investors as a private placement and then redistributed on a secondary market via EU and Swiss-regulated trading entities.

3. Private blockchains do not provide a level of immutability differentiation regarding transactions ledger relative to centralized databases.

The current stage of development of distributed ledger solutions is not sufficient for this purpose. However, we witness that the crypto industry's progress is accelerating, which leads to more advanced blockchains in the forthcoming future.

4. The anonymity of transactions cannot be guaranteed at the current stage of the public blockchain technological development.

Despite there are many different existing blockchains nowadays and a substantial number of companies work towards enhancing the distributed ledger technology solutions, we are still far from the stage when the integrations are fast, seamless, and faultless.

SUMMARIZING STATEMENT

Instant settlement across non-custodial solutions can help Eurozone clients and beyond to saddle the evolution curve in payment solutions acceptance and usage. There is a clear demand for a digital euro existing on a public blockchain with transparent reserves issued by a private company. Such an asset will be the best solution that can be used to compete with the digital dollar in the global remittance and corporate settlement trading markets including such new and fast-growing sectors as decentralized finance. We are confident that private issuers’ legitimization will benefit the underlying currency (EUR) as a payment and settlement tool globally and challenge the USD role of monopolistic currency.