Are Stablecoins the future of crypto currencies? (EN/FR)
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(French Version below)
On 22 March 2021, a consortium of companies led by Groupe Casino including Société Générale, PWC, Coinhouse, Sceme and Nomadic Labs launched a new digital asset named "Lugh" (symbol EURL).
Nothing very new in theory, especially in an ecosystem that had more than 4,000 different crypto currencies by January 2021, however Lugh has a special feature that sets it apart from the rest of the digital currencies, it is a Stablecoin.
How is Stablecoin any different from other crypto currencies?
A Stablecoin, just like the classic crypto-currencies, which we mentioned in Louis Detalle's article on Bitcoin, is part of the large family of digital assets. However, unlike Bitcoin, Ethereum or other crypto currencies, a Stablecoin has very low volatility because it is backed by a fiat currency and therefore guarantees its users protection against market fluctuations (protection against interest rate risk).
Typically, Stablecoins are backed by the dominant fiat currencies in the international markets, such as the US dollar, the euro and the yen. The most popular Stablecoins today, such as Tether (USDT) or USDC Coin, are based on the dollar, with which they try to maintain an almost exact parity. The previously mentioned Lhug is based on the euro.
There are also Stablecoins whose price is based on commodities (gold for Tether gold [XAUT]) or on other crypto assets (such as DAI which is based on Ethereum). More rarely, there are Stablecoins that are not backed by other assets, which makes them rather unattractive.
Stablecoins thus appear to be a reliable, cheaper, and more efficient alternative to traditional crypto-currencies for its users which largely explains their attractiveness (even though they only represent a total capitalisation of $66 billion within the $2 trillion capitalisation of crypto-currencies).
Stablecoins: digital assets under high scrutiny
Unlike early crypto currencies such as Bitcoin, which remained under the radar of public authorities for a long time, Stablecoins have been under an ever-increasing scrutiny by international and especially national financial institutions.
Many fears are thus relayed by leading public decision-makers, such as Bruno Lemaire, about the dangers of Stablecoins. Last September, Eurozone finance ministers stated that: "Stablecoins should not be allowed to operate in the European Union until the legal, regulatory and supervisory issues have been resolved.".
The problems to which this quote refers are, according to the policy makers, the following:
- Risks of money laundering and terrorist financing
- Endangering financial stability
- Challenges to the effectiveness of monetary policies
- Threats to the monetary sovereignty of states
This questioning of Stablecoins came at a time when a consortium of companies led by Facebook had just launched its digital currency project: Libra (now Diem). Following the outcry in Europe and the United States, some major companies such as Paypal, Visa, Mastercard and Ebay withdrew from the project, which seems to have become less active since then.
Concerned about this project, the European institutions have since taken up the issue of crypto-currencies and therefore Stablecoins with the release last September of a so-called "digital package" project of the European Commission including two new regulations (MiCA and PRR) currently under discussion to regulate the crypto-asset sector.
Some countries, such as China, have already reacted more aggressively by banning all Stablecoins based on its currency (the Renminbi) in anticipation of the widespread introduction of the Digital Yuan (which is a central bank digital currency that we will discuss in an upcoming article).
What’s next for Stablecoins?
Stablecoins are now booming around the world due to their undeniable strengths compared to traditional crypto currencies. However, the growing importance of these digital currencies is arousing the suspicion of global financial institutions, and more particularly of governments, who fear that the linking of these crypto assets to their own currency or to a basket of currencies could ultimately jeopardise their monetary sovereignty to the benefit of private players. These fears explain the recent willingness of many states to embark on the development of a new financial tool to compete effectively with crypto-currencies and especially Stablecoins: Central Bank Digital Currency.
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Les Stablecoins :
Le futur des crypto-monnaies ?
Le 22 mars 2021, un consortium d’entreprises mené par le Groupe Casino regroupant la Société Générale, PWC, Coinhouse, Sceme et Nomadic Labs a lancé un nouvel actif numérique nommé « Lugh » (symbole EURL).
Jusque-là rien d’extraordinaire dans un écosystème qui comptait en janvier 2021 plus de 4000 crypto-monnaies différentes pourtant, le Lugh dispose d’une particularité qui le démarque du reste des devises numériques, il s’agit d’un Stablecoin.
Le Stablecoin, une espèce à part de crypto-monnaie
Un Stablecoin, tout comme les crypto-monnaies classiques, que nous évoquions à travers l’article de Louis Detalle sur le Bitcoin, fait partie de la grande famille des actifs numériques. Cependant, à l’inverse du Bitcoin, de l’Ethereum ou d’autres crypto-monnaies, un Stablecoin est très peu volatil du fait de son adossement à une monnaie fiduciaire et garantit donc à ses utilisateurs une protection vis-à-vis des fluctuations du marché (protection contre le risque de taux).
Classiquement, les Stablecoins sont adossés à des monnaies fiduciaires dominantes sur les marchés internationaux comme le dollar, l’euro ou encore le yen. Les Stablecoins les plus connus aujourd’hui comme le Tether (USDT) ou l’USDC Coin sont ainsi basés sur le dollar avec lequel ils tentent de maintenir une parité quasiment exacte. Le Lhug évoqué plus haut est quant à lui basé sur l’euro.