Euro-backed stablecoins will see booming growth, gaining a 0.5 per cent share in total Euro circulation volume within a 3-year period, according to analysts from a Cyprus-based fintech firm and a French fintech and payment company

They noted that this indicator may further reach as much as 1 per cent over the next 5 years.

Cyprus-based fintech firm Armenotech and payment operator Tempo France said in a jointly published piece of research that Euro-backed stablecoins will experience exponential growth in volume.

The companies, engaged in a strategic partnership, believe, that within 3 years, the share of Euro-pegged stablecoins will reach as much as 0.5 per cent in the gross circulation of fiat Euros.

According to the research by the two firms, the current Euro-pegged stablecoins’ share in the fiat currency circulation does not exceed even one hundredth (0.007) of a per cent, at a volume of €700 million. The same figures for USD-backed stablecoins are currently 0.7 per cent and over $130 billion respectively, according to other studies.

The companies’ specialists stated that they believe that the incipient rise can be attributed to a set of factors, the first of which is the new European regulations governing digital assets, adopted this year.

The regulations give significant impetus to crypto assets and the digitalisation of payments in the EU.

“We expect 2024 to be the year of active implementation of blockchain for payments, since it increases transaction speed, transparency, and drastically reduces the costs,” said CBO for Armenotech, Daniel Gazaryan.

“Another important factor is the speedy development of Central Bank Digital Currency (CBDC) initiatives that will positively affect stablecoins in Europe as a possible Decentralised Finance (DeFi) component,” he added.

Gazaryan continued by saying that “with the regulations in place, the CBDC will be playing the role of stimulator and inspirer moving consumers to choose decentralised coins”.

Armenotech and Tempo stated that they believe that the number of EU financial institutions implementing blockchain in their systems may grow by up to 30 per cent in the next year.

“As Euro-backed stablecoins should play a significant role in the blockchain portions of settlements made, their deficit may become critical in the second quarter already,” said CEO of Tempo France, Alla Zhedik.

“This will drastically stimulate companies to meet the demand by putting new coins into circulation,” Zhedik added.

“We expect 5 to 6 new promising [Euro-pegged] coins to appear, with their volumes increasingly growing in Europe in 2024. The payment market will be demonstrating a soaring number of projects bridging traditional and digital assets, yet another push for Euro coins to rise. The market may see the number of these integrations increase by 50 per cent compared to that seen in 2023”, Armenotech’s Gazaryan explained.

In order to compete with each other, the two firms said, European companies will have to switch from USD-backed coins to Euro-pegged ones as they appear.

At the moment, USD-backed stablecoins dominate the market, but in 2024 the share of Euro-pegged operations will start growing at least in the EU, they explained.

“Next year, cryptocurrencies will be even more recognised as credible digital assets, and payment and investment instruments,” Zhedik said, noting that “significantly more (from 25 to 35 per cent) retailers and businesses will accept payments in DeFi instruments in one form or another, allowing customers to pay using popular cryptocurrencies and trusted European stablecoins”.

“This trend will add to exponential growth in digital assets, including Euro-pegged stablecoins,” Zhedik added.

What is more, the two firms mentioned that together with the changes in the payment market and its increasing digitalisation, there are a few other aspects to stimulate exponential growth in Euro stablecoins.

“One of them is that the strongest European economies keep broadening DeFi potentials. In 2024, traditional financial institutions, fintech companies and retail will have a great chance to cope with the challenges and take advantage of the opportunities which digital assets present,” the companies explained.

In addition, they noted that the European market is still too far away from the moment when DeFi and traditional assets have become equivalent and interchangeable, but this direction has been set to a certain extent.

“We estimate that the increase in DeFi transactions has been fluctuating from 25 to 50 per cent per month at least for the past 6 months,” Armenotech and Tempo France said.

They continued by saying that “the growth in Euro-pegged stablecoin volume is significantly backed by the fact that fintech companies are looking for new ways to offer clients services similar to traditional finance”, noting that “new services will contribute to the position of growing Euro-backed stablecoin”.

They explained that these include exchange operations, custodian services and staking, a kind of analogue of bank deposits but with higher possible interests.

Also, they mentioned that the web environment itself has been becoming more favourable, stating that the market has seen an increasing number of Web3 initiatives, which feature the ideology of blockchain, artificial intellect and connectivity.

“Besides significant growth in the adaptation of DeFi assets and enhanced regulations, one should take into account yet another very important trend that will definitely stimulate Euro-backed stablecoins,” Gazaryan said.

“This is rapidly soaring interest from financial institutions in investing in digital assets. The interest is driven by higher possible yields, previous positive experiences to learn from and a wider spectrum of instruments DeFi may offer now and in the future,” he added.

The two firms mentioned that financial institutions still consider digital assets to be risky investments, but most of them still allocate funds to risky strategies.

“According to our information, more and more financial analysts of large companies consider certain mistrust in digital assets to be excessive,” the two companies said.

“The surplus wariness is based on excessive conservatism, lack of experience and absence of regulation in the past,” they added.

Moreover, they said that large institutions have already started offering investors new digital asset investment products, while some allow transfers similar to classical wires and conversion.

“The products will turn into a growing snowball,” they said, noting that “this will generate a greater need for stablecoins to make transfers and settlements”.

Furthermore, the two companies believe that the total investment portfolio of banks and investment companies in digital assets will increase from 15 to 25 per cent in 2024, while the digital asset product line will drastically widen too.

Armenotech and Tempo France concluded by saying that given these factors, the two firms stated that they expect “the share of Euro-pegged stablecoins to increasingly grow to reach 1 per cent of the Euro circulation in the medium term of 5 years”.