The European single currency has advanced to become the second largest player on the global currency market in the last 20-plus years. Nevertheless, a 100% digital, cryptographically secured variant of the euro is missing, similar to what is already the case for the US dollar with Tether (USDT).
Now, one could argue that with the emerging Central Bank Digital Currencies (CBDC), a stable coin should be obsolete, but this is not the case at all, as CBDC are not compatible with decentralized systems such as Ethereum. The Ethereum network is by far the largest decentralized financial system in the world, so it would be fatal if no euro-denominated stable coin existed in this system. In the final analysis, this always means that all European players in the decentralized financial sector (DeFi) must expose themselves to US dollar exchange rate risk and cannot trade in domestically denominated currency.
The use cases for a euro cash token are diverse. Token holders use the DCE primarily for the following motivations:
1. access to the Decentralized Finance (DeFi) space and decentralized exchanges.
2. Lightweight: unlike heavy gold bars or bulky cash, you can easily take the Digital Euro with you everywhere in your wallet.
3. “Censorship-Resistance”: autonomous cash token in my own wallet that can’t be turned off, disabled or searched.
4. crisis prevention, in case of bank failure I still have Euros available to use outside of online banking with SEPA and SWIFT.
5. alternative to bank and book money, which is directly subject to a debt cut, a burden equalization / asset levy or a default of the bank.
6. as an institutional or regulated market participant: lower capital adequacy due to better risk-weighted assets (RWA) compared to other stablecoins, as 100% physically backed by cash – which unlike bank money – is not subject to any credit or default risk.
The feasibility limits of the project are clearly outlined, there are certain use cases that we cannot or do not want to support.
These include all illegal business transactions, in particular:
– Money laundering & tax evasion
– Drug trafficking & terrorist financing
– evasion of sanctions and embargoes
Contrary to what is often propagated, cryptocurrencies are actually not well suited for illegal use, precisely because of their high transparency. The use of Bitcoin and Ether only happens “pseudo-anonymously” because a unique public key is assigned to each transaction. All transactions can therefore be viewed 100% publicly and are thus much easier for law enforcement agencies to trace than anonymous cash transactions.
Can you pay with the digital euro in the event of a crisis? That depends on the scenario. As long as access to the Internet works, it is possible to use the digital euro without any problems.
If there is another financial and banking crisis like the last one in 2008, the digital euro will be decoupled from the book money system and will not be affected. So if major banks or payment service providers fail, the Ethereum network will continue to exist and I will always be able to access my wallet, no matter if there is a bank run or a war of aggression in Europe.
With you at all times – crisis currency: In addition, the euro equivalent can be conveniently carried in your own pocket as paper or USB stick at any time within your own wallet.
More than 7000 independent Ethereum nodes are operated worldwide, and the trend is rising. This makes it de facto impossible to shut down the system in a centrally controlled manner, be it due to a
natural disaster, a politically motivated intervention or a war. This is what makes cryptocurrencies like Bitcoin and Ether so fail-safe with almost 100% availability.
Tokenized cash combines the positive features of cash and cryptocurrencies. One has the physical security of the bill without it being encumbered by third-party claims. This is the case, for example, with bank or giro money, since the owner is always exposed to the risk of default by a central party, namely the bank. At the same time, as the owner, I can carry out transactions worldwide in a few seconds, and the costs for this are considerably lower than the costs of a comparable fiat transaction due to the correspondent banks involved.
One uses the “digital twin” – the banknote itself remains in a safe place in the vault and I as the user can still use it as liquidity and trade with it, for example.
There is no longer any need for a separate safe for the cash; instead, I always have my cash with me in digital form. Of course, there are also associated disadvantages; the cash has to be stored, which involves considerable logistical requirements and costs. These costs are borne by Digital Cash as part of the business model, so holding the Euro Token is and remains free of charge for the user.