Machine money gains traction among EU regulators; stablecoins under consideration

The growth of stablecoins within the crypto asset market is undeniable, and the recent report by the Digital Euro Association (DEA) highlights potential opportunities for European-Union-denominated stablecoins within the context of machine-to-machine (M2M) payments and other aspects of decentralized finance.

The report titled “The future of machine money – Opportunities for stablecoins in Europe” examines the potential for stablecoins to facilitate the development of the Internet of Things (IoT) and how Europe could leverage this aspect to uphold its digital competitiveness. The report argues that automated micropayments enabled by stablecoins could serve as a means for Europe to augment its digital capabilities.

As of March 2022, prior to the collapse of TerraUSD, the top ten stablecoins had a combined value of approximately USD 164 billion, representing a 460% increase from the previous year. Tether and Circle, the two largest stablecoin issuers, have both introduced stablecoins backed by the Euro. Tether’s Euro Tether (EURT) valued at $220 million, with more than 200 million tokens currently in circulation, while its USD-pegged stablecoin, USDT, has a market capitalization of $71 billion. Circle’s Euro Coin (EUROC) has a market capitalization of $33 million, whereas its USD-pegged stablecoin, USDC, has a market capitalization of $43 billion.

However, as of November 2022, EUR-based stablecoins accounted for less than USD 500 million in market capitalization, equivalent to roughly 0.2 percent of the total stablecoin market.

Apart from acting as an entry point to crypto trading, a safe haven from market volatility, and providing access to decentralized finance (DeFi) markets, stablecoins have also been utilized to enhance financial inclusion and facilitate cross-border payments for underserved communities, the report argues.

Differentiation between internet-of-things (IoT) and machine-to-machine (M2M) payments is starting to emerge, however, led by more than 11.3 billion operational IoT devices worldwide in 2021, which experts believe will surge to 30 billion by 2030. This burgeoning trend is set to impact all sectors of the economy and is expected to unlock economic value ranging from USD 5.5 trillion to USD 12.6 trillion, an economic boon for global finance too.

The report suggests that European policymakers and regulators should encourage the implementation of industry-wide or EU-level standards that incorporate established best practices and global standards. As digital euro is not likely to be issued until late 2026 at the earliest, the report suggests that EUR-based stablecoins could play an important role in fostering growth in the M2M space.

Therefore, establishing clear regulations for stablecoins and fostering the growth of the stablecoin market could help Europe to compete effectively in the rapidly-evolving digital economy. The DEA report highlights that while there are many use cases for stablecoins, facilitating M2M payments and enhancing IoT capabilities stand as the most promising in Europe.


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