Stablecoins: Popularized by Facebook, Pilloried by Regulators

(Bloomberg) -- Facebook Inc.’s Libra initiative has thrust the stablecoin -- digital currency pegged to the value of low-volatility alternatives like the dollar -- into the spotlight. Gregory Klumov, founder and chief executive officer of Stasis, the company behind EURS, a stablecoin pegged to the euro, discusses the issues surrounding the growing visibility of these relatively stable digital assets.

What’s your take on the regulatory environment?

Some regulators have taken a hostile approach to stablecoins because they feel certain structures threaten their national interests and ability to conduct monetary policy. However, stablecoins backed by a single currency, like EURS, do exactly the opposite. It in fact promotes the national currency beyond its borders, which is what every nation wants.

Is a euro-based stablecoin a problem?

U.S. dollar stablecoins dominate the market because all new assets are first priced in dollars, and most importantly because interest rates are positive there, meaning there’s some tailwind to support operations which are costly. In Europe, rates are negative.

Still, we are fortunate to have a region that is quite supportive of this new business activity. Europeans have frameworks to support digital assets, whereas in the U.S. there is no political will to introduce a legal framework for this.

One of our current payment institutions has an account directly with the Lithuanian central bank, meaning some EURS funds are held in the European System of Central Banks.

What’s the market outlook?

Stablecoins could be really helpful for big corporations that operate in multiple jurisdictions and want to transfer value.

Imagine a company that has 100 subsidiaries all over the world and all of them need to pay each other for the traffic flow of goods and services and then every transaction requires paperwork. With a stablecoin, transaction costs are minimal and can happen instantly, versus 20 days for regular cross-border payments.

We had one big metals and mining company reach out to us, as well as a couple of French companies, including Air France.

What are your thoughts on Libra?

Libra has helped with conversations with corporations and made more people aware of this phenomenon called stablecoins. But a basket like Libra’s will not work. It threatens the sovereignty of states and opens up a window for capital flight. That’s why you’ve seen politicians and regulators furiously defend their monopoly to control transactions.

In the morning you may have 100 euros and then you take those and buy Libra with them, but since half of the basket is dollars, at the end of that transaction Europe faces capital flight and some of that 100 euros is no longer going to be in the European capital system.

When you have a stablecoin backed by a single currency such a situation will not happen because the money will always stay in an account in the euro area.

Why did you set up in Malta?

Malta was the first jurisdiction friendly enough and fast enough to bring people from the crypto industry to the table with regulators to create a legal framework around digital assets. Still, we have consulted with the ECB, the Bundesbank, the German parliament, France’s Ministry of Finance and the French markets regulator Autorite des Marches Financiers.

To contact the reporter on this story: Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net, Patrick Henry

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