EuroTZ

The EuroTZ Tezos Stablecoin: A PSD2 Compliant Bridge Between Fiat & Defi

NameEuroTZ
PriceA Euro Stablecoin
MarketcapStill In Development
Circulating SupplyStill In Development
Max SupplyUnknown
Market RankNot yet listed.
Token Type/DescriptionA stablecoin based on the Euro fiat currency living on the Tezos blockchain.
Release DateUnknown (expected soon)
IndustryCan span multiple industries
Unique Feature(s)The fiat collateral backing the stablecoin is able to be checked in real-time through the help of open banking and the PSD2 directive. This helps to ensure transparency and compliance with many securities regulations.

It also ensures Delivery Versus Payment can take place by communicating with bank APIs.

The user doesn’t need any Tez, as it’s up to the gateway to pay for the fees.

It can help enable atomic swaps with other FA1.2 Tezos token standards.

It can help enable Bulletin Board smart contracts, automating certain roles of intermediaries.

Contains a bond smart contract.
Relevant Websiteshttps://eurotz.eu/, EuroTZ Video Introduction
Whitepaper/Git Repositoryhttps://gitlab.com/tezos-paris-hub/eurotz-euro-stable-coin
Blockchains UtilizedTezos
Role of TokenStablecoin
Language UsedSmartPy
TickertkZos (expected)
EuroTZ Breakdown

The Present Euro Stablecoin Landscape

There are many stablecoins available in the cryptocurrency space for all different fiat varieties, however, there are not very many ‘Euro’ stablecoins at present. This is strange considering the Euro is the second biggest world currency after the United States Dollar.

There are also certain conveniences for having a Euro-backed stablecoin including the option for people to send funds through the SEPA (Single European Payments Area) network. With SEPAcustomers can now make cashless euro payments – via credit transfer and direct debit – to anywhere in the European Union, as well as a number of non-EU countries, in a fast, safe and efficient way, just like national payments”.

Another potential key advantage of a Euro-backed stablecoin would be for borrowers holding crypto against a currency that has negative interest rates associated with it. As Gregory Klumov of the STASIS Euro stablecoin project stated in CoinTelegraph: “…the euro has a killer advantage for borrowers holding crypto — the negative interest rate yield. So far, there are no crypto lending platforms that understand how to capitalize on this advantage. If used right, it can reduce current crypto borrowing rates by at least 3% and still offer an attractive euro-pegged deposit yield, as the latter is practically non-existent, at 0.0–0.3% per annum.

Indeed if an entity is able to capitalize on the negative interest rates dilemma then it may also be of interest to central banks. If central banks wanted people to switch over to digitized CBDC tokens in the future, the incentive would be there to avoid negative interest rates. Indeed, some have even called for a Euro stablecoin to be created in order to save the Euro fiat currency.

As the prospect of negative interest rates in the US was discussed early in 2020, all top 5 stablecoin issuers stated they would maintain 1:1 parity with the dollar. Maintaining a 1:1 parity means that there is a cost to foot somewhere in the process.

Here, below is an overview of some of the Euro stablecoins in the cryptocurrency space, or looking to enter soon.

Synthetix Euro:
There is a Synthetix Euro coin on the Ethereum blockchain, however as can be seen in the contract there is not much activity for this particular Synthetix variety as of yet.

STASIS:
The STASIS Euro Stablecoin is also based on the Ethereum network and does have more activity, however, it is not clear as to whether the coin provides Delivery Versus Payment, PSD2 compatibility, or real-time transparency. On their website, users are able to view ‘Daily Account Statements‘.

Tether Euro:
In May, 2020 Tether and Bitfinex CTO Paolo Ardoino stated in an interview that Tether was looking at creating a Tether Euro. It was stated the Tether team was experiencing ‘several problems with the development of the project’.

On the recorded interview the CTO explained that one of the problems with creating a Tether Euro was the negative interest rates concerning the second largest fiat currency. He stated that this would make it difficult from a Tether portfolio management point of view to ensure that the monetary base that is held in a Tether Euro bank account will remain constant. Tether are monitoring the situation, but don’t have a good solution yet.

This means that although the negative Euro interest rates may make it seem attractive for the borrower to use a Euro-backed stablecoin, it could potentially become quite expensive for the issuers to maintain parity collateral in their accounts.

This prompts some important questions:

How do you make it possible to maintain parity with a fiat currency on the blockchain, when the underlying collateral may change negatively and go down?

Who foots the bill of the negative interest rate?

The advantage of Tezos over some other competitive chains is that it has fully-functional proof of stake that works today. Tezos staking rewards are currently at 5.95% as of today. If staking rewards could somehow offset the cost of the negative interest rates, then there could potentially be a system that benefits both borrowers and issuers into making a Euro stablecoin a much more suitable option.

If there are negative interest rates affecting collateral and the collateral is synced in real-time with the Euro stablecoin assets, then these assets should match up to reflect the existing collateral. This would result in negative depreciation for the Euro stablecoin holders, this would then reflected upon the stablecoin.

However, due to the staking environment of Tezos, it may be possible to make use of atomic swap or bond-like features to adapt to this problem and potentially even adding staking into the mix. As EuroTZ is a FA2.1 compliant token it will almost certainly be able to conduct atomic swaps with XTZ and other Tezos-based tokens. In the EuroTZ Gitlab, there is a bond contract, indeed there are many contracts that look to interact with each other.

There may also be other ways to address the negative interest rate issue and this might not be feasible, so at the moment these methods are just speculation.

It is not yet clear how EuroTZ aims to get around the negative interest rates associated with the EURO at this point.

UPEUR – The Universal Protocol Alliance Including Bittrex/Uphold:
In March 2020, Bittrex unveiled a Euro stablecoin running through Uphold. This coin enabled a form of external staking through the CredEarn feature going through the 3rd-party of Cred. Again, it doesn’t seem to have much activity and doesn’t seem to have a fully-transparent real-time Delivery Versus Payment system in place with a bank.

EUROTZ

On March 6th, 2020, Tezos core developers Nomadic Labs hosted a ‘Tezos Developer Day’ in Paris. Present, as part of this developer day, was an organization named ‘Neofacto’ who are based in Luxembourg, Brussels, and Paris and work on a variety of blockchains. On this developer day, Neofacto announced that they were working with Nomadic Labs on a Tezos stablecoin called ‘EuroTZ’.

Neofacto is the creator of a company called TKNext, which is described as being a “delivery platform against payment of crypto-assets for OTC operators” There appears to be a website for TKNext here, which appears to hold an Estonian license named: “Virtual currency against a fiat currency exchange license FVR001389” Laurent Kratz described it as a “complete platform that helps to do decentralized finance“.

Laurent Kratz explained that in order to do decentralized finance you need a few key elements: a stablecoin, a structural financial instrument such as swaps, bonds, and a way to do DVP (Delivery Versus Payment).

According to Investopedia: “DVP is a securities industry settlement method that guarantees the transfer of securities only happens after payment has been made. DVP stipulates that the buyer’s cash payment for securities must be made prior to or at the same time as the delivery of the security.

DVP is actually a key element that is needed for security tokens to be able to abide by regulations.

DvP is defined “in the existing international standards for financial market
infrastructures, namely the Principles for financial market infrastructures (PFMIs)”.
The Principles for Financial Market Infrastructures (PFMIs) was published by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO).

The IOSCO help regulate the worlds security and futures markets. It’s membership “…regulates more than 95% of the world’s securities markets in more than 115 jurisdictions; securities regulators in emerging markets account for 75% of its ordinary membership“. With this in mind, it is vitally important to comply with ‘Delivery Versus Payment’ and the ‘Principles for financial market infrastructures‘ from an international perspective with any DeFi projects. By complying with transparent Delivery Versus Payment when transacting cryptocurrencies and fiat, the EuroTZ stablecoin already has an advantage over many competitors in the space.

So, how does EuroTZ achieve Delivery Versus Payment compliance? Neofacto has its own stablecoin called ‘Tokeur’ “whose collateral is guaranteed in real-time thanks to a DSP2 interface from the depositary banks of the receiver.” The DSP2/PSD2 in this sentence relates to a revised EU Payment Services Directive introduced in 2016, replacing the original payment services directive adopted in 2007. The purpose of PSD2 “is enabling third parties creating new Financial Services through open APIs to customers’ bank accounts“.

The Tokeur wallet website describes itself as a “Bridge between Crypto and fiat thanks to PSD2.”

The stablecoin talked about in relation to Nomadic Labs in the Tezos developer day was EuroTZ and it appears EuroTZ also has its own website: https://eurotz.eu/. As the project and contracts are still in development we are not covering any data within the websites/contracts, as this is highly likely to be related to testing/test contracts.

The project appears to be making use of the Open Bank Project created by TESOBE and by being open-source this helps keep any activity connecting the bridges between digital assets and fiat as decentralized as possible. It’s thanks to the PSD2 payments directive that banks share their data publicly with APIs. Due to such APIs, as soon as certain conditions are met and a payment is made in fiat, an account-to-account payment can be passed over via smart contracts.

It may seem as though in this situation oracles are not needed and in the similar-looking design system shown in project STELLA it appears that the process fail systems where settlement might fail don’t account for oracles.

Despite this, an oracle could be used to disseminate secret information in a transaction, however other approaches can also be done as the STELLA report states: “…the notary service must not know the identity of the receiving participant. Different approaches could be used to disseminate secret information, either through a trusted third party such as an oracle or via the notary distributing the finalised transaction to the participants, or the receiving participant being able to query the notary service“.

Customers of the Open Bank Project include big-name banks and institutions such as BNP Paribas, Santander, HSBC and Société Générale in the sandbox. In this case, Neofacto is using BNP Paribas and you can see BNP Paribas is being used as a test example here in the EUROTZ test banking section of the process flow. You can check the EuroTZ smart contract written in SmartPy on the Tezos blockchain here.

The EuroTZ uses an extension of Tezos token standard contract FA1.2 with events. The stablecoin is also to be compliant with the Equisafe Nyx token standard (and likely other standards pertaining to FA1.2), which means that atomic swaps between EuroTZ and tokens created by Equisafe will be possible.

It should be stated the EuroTZ requires compliance with KYC/AML features via a whitelist contract.

Bank CBDCs

In April, 2020 the Central Bank of France – The Banque De France issued a call to action “for applications to experiment with a central bank digital currency for interbank settlements.”

In May of this year just after the submission deadline had passed, it was announced that the Banque De France and investment bank/financial services company Société Générale successfully tested a blockchain digital currency.

Prior to this in April 2019, Société Générale issued a €100 million bond as a security token on the Ethereum blockchain, indeed this project was also partnered with Neofacto. Indeed bond smart contracts are present

It is not clear which blockchain the 2020 Société Générale/Banque De France test was performed on and many originally assumed it was on Ethereum due to the previous test.

It should be stated that Société Générale is a technical partner of Neofacto, who are in turn a technical partner of Nomadic Labs, who form the main part of the Tezos core development team alongside Cryptium Labs/Metastate and DaiLambda.

Indeed, Société Générale’s blockchain setup can be geared to the Tezos blockchain if necessary as Jonathan Benichou, co-founder of the Société Générale Forge team stated: “If tomorrow it is necessary to operate on Tezos, Hyperledger or any other technology, our broadcasting platform allows it. 

NeoFacto are doing a lot in the CBDC space, as we can see from this webinar post (browser translate required for English audience) from April, 2020:

A Neofacto Webinar Post

Conclusion:

The EuroTZ helps to bring PSD2 (Amended Payment Services Directive) and DVP (Delivery Versus Payment) compliance to Tezos Defi. The competition for the Euro stablecoin market is heating up, however, no present incumbent has yet developed into a large stablecoin traders and institutions regularly use.

There is a unique demand from traders and institutions to create a Euro-backed stablecoin for reasons including the fact that: the Euro is the second biggest currency, the Euro has negative interest rates and the Euro has convenient SEPA payments.

The EuroTZ has some distinct advantages over other Euro stablecoins as it offers real-time transparency through the Open Bank Project allowing for PSD2 and DVP compliance. It is also able to take advantage of the unique features provided in the Tezos blockchain.

It is being developed by a company that has undertaken and successfully tested CBDC experimentations with one of the biggest central banks in Europe – the Banque De France, alongside France’s third-largest bank – Société Générale.

**Please note the EuroTZ project is still under heavy development and is subject to change. Any data found within the project is likely there for testing purposes and therefore this is a more general review looking at the overall project, rather than looking into any specific numbers.

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