Stablecoin: for the European central bank they will be treated as assets and not as currency

Stablecoin: for the European central bank they will be treated as assets and not as currency


There has been a continuous evolution in the global currency system, which has allowed people to make payments in seconds, with just a few clicks, on digital platforms. And so is happening in the cryptocurrency industry, which is a digital currency in its own right. Stablecoins are a form of digitized assets, which have a range of prices that vary relative to other currencies. In recent years, stablecoins have become a hot topic of discussion, however there are still some risks that go hand in hand with the use of digital assets and could hamper the financial position and stability of an entire country.

The European Central Bank has always closely monitored the functioning of stablecoins and has taken various measures to control and regulate them previously, such as the PISA framework. There has been a continuing series of regulatory measures that have been taken by the ECB, regarding stablecoins.

The EU has also sought closely to examine the various legislative solutions that could be considered in the stablecoin field. Recently, for example, there has been a hint from the president of the European Central Bank that stablecoins will be treated more as an asset than as a currency. Stablecoins had been criticized by Lagarde before, but now she seems to treat them much more as an asset. The European Central Bank has conducted several investigative procedures in recent years and many more will be carried out in the future.

Meet Float Protocol - The Algorithmic Stablecoin Built By An Anonymous Team

Last month, when digging through a library of Satoshi’s writings, I found an email thread that piqued my interest. 

Anonymous Writer: You will not find a solution to political problems in cryptography.

Satoshi: Yes, but we can win a major battle in the arms race and gain a new territory of freedom for several years. Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.

To this day, Satoshi remains anonymous as the founder of Bitcoin. His anonymity is the key feature of Bitcoin’s design and, presumably, a crucial piece in the asset’s decentralization. Satoshi’s continued anonymity has prevented governments from truly controlling the supply of Bitcoin, making it akin to a commodity rather than a financial instrument. Even with China continuously making efforts to regulate and ban Bitcoin, the asset continues to come back stronger.

But can anonymity benefit other crypto currencies and even stablecoins?

“In the same way we are all Satoshi, we are all John, Paul, George and Ringo,” says John L. of Float Protocol.

I first met with the founders of the decentralized stablecoin protocol FLOAT, over Zoom to ask a few questions about their project. During our conversation about team development, it became apparent that John and Paul were not their real names. After a brief inquiry, they explained to me that the team drew inspiration from the Beatles, using their names as pseudonyms. 

“As the project outlives us, there may be another John and another Paul. What matters is that they step in the same role and continue to serve the project in a similar way,”  says John L. of Float Protocol.

Over the last year we have seen a meteoric rise in the popularity of stablecoins. From USDT, with a market cap of $70 billion, and USDC, with a market cap of $32 billion, to other exchange-specific coins such as Binance-USD and the Gemini Dollar, it seems stablecoins are becoming increasingly more integral as DeFi outpaces the legacy financial system. Even central governments have started taking note, rolling out their own government-sponsored digital currencies - most notably, China’s Digital Renminbi. 

These digitized alternatives, however, are still pegged to fiat, and with it, carry the flaws of the centralized financial legacy system. First, anything tied to the dollar will face increasing regulatory scrutiny. Just this week, the SEC subpoenaed Circle’s records, the company behind USDC. Second, most stablecoins are U.S. centric in a time when much of the world is looking for opportunities to avoid the pitfalls of hyper-dollarization. Third, the value of the dollar is at the mercy of the decision-making capabilities of just a  few individuals leading the Federal Reserve. Since the dollar was unpegged from gold in 1971, the expansionary monetary policies implemented by the Federal Reserve has steadily eroded its value.

In answer to this, many new stablecoins are displaying a design paradigm shift. Algorithmic stablecoins are unpegged, and collateralized by a diverse collection of assets. Several notable projects have been deployed over the last two years including RSR by Reserve, XST by SORA, OHM by Olympus, RAI by Reflexer Labs, and most recently, FLOAT by Float Protocol. 

Float recently completed a $1.2 million raise, aptly referred to as a “treasury diversification round.” Participants included Eden Block, AAVE founder Stani Kulechov, Akropolis founder Ana Andrianova, and popular DeFi investor Santiago Santos, along with several DAO’s, including MCV and the LAO. According to the team, Float is designed to be a native internet currency, functioning in a way that satisfies the three major properties of legitimate money - as a medium of exchange, a store of value, and a unit of account, and is designed to provide a decentralized alternative to inflationary, dollar-pegged stablecoins.

“Float Protocol answers the problems of USD inflation, crypto volatility, and regulator scrutiny of stablecoins with groundbreaking elegance and simplicity,” says Dermot O’Riordan of Eden Block.

The protocol utilizes a two-token system - FLOAT, the stablecoin that ties its value to a collection of digital assets, and BANK, the protocol’s governance token. BANK can fluctuate in price, absorbing volatility, while FLOAT aims to be relatively stable while still reflecting market conditions. The starting price during issuance was set, very cleverly, at $1.618 - the golden ratio in mathematics. Notably, the protocol reached a record “total value locked” of $1.5 billion, one of the highest of its peers. Since then, the price has ‘floated’, as its collateral is ETH, expanding in a bull market and contracting during bearish periods, but with smoothness and low-volatility. 

“The protocol utilizes Dutch Auctions, which are not only efficient due to their game-theoretical nature but they are also flash-loanable. This allows for a capital efficient and profitable opportunity for traders and arbitrageurs alike,” says Paul M, lead developer at Float Protocol.

In an increasingly heightened regulatory climate, it seems that anonymous teams are onto something. Stablecoins have been drawing the attention of the Biden administration, due to the perceived risks for consumers and the traditional financial system. As U.S. officials continue to make stablecoins the focal point of regulatory control over crypto markets, many predict that stablecoins will soon be the first to face comprehensive regulation. And with the wounds of the 2008 financial crisis still fresh in the minds of many officials, it seems likely that stablecoins will be declared “systemically important” and, therefore, placed under strict regulation.

If DeFi hopes to avoid the pitfalls of the traditional financial system, it is important that stablecoins move away from being tied to those same traditional systems. Collateral diversification, algorithmic design and anonymous founding teams might just make the perfect combination to make decentralized finance a reality.