Launch of Euro stablecoin Lugh, backed by SocGen bank deposits

Launch of Euro stablecoin Lugh, backed by SocGen bank deposits

Today French startup Lugh announced the launch of a new Euro stablecoin on the Tezos blockchain, with associated bank deposits held by Société Générale and audits from PwC and Maghreb.

The announcement also says that French supermarket chain Groupe Casino (2020 revenues €32 billion / $36 bn) has plans to use the stablecoin both as a means of payment and for rewards.

We reached out to all three enterprises for confirmation. Société Générale confirmed, but we did not receive a response in time for publication from the others.

Initially, the stablecoin will only be available on the French cryptocurrency exchange Coinhouse. However, the announcement clarifies that the coin is intended as a first step for other blockchain applications that will leverage it, such as the supermarket chain.

The tokens EUR-L will be backed one for one by euros held in a Société Générale dedicated account. One question relates to the regulatory position. The startup states the coin “has been presented to the French regulatory authorities and is willing to comply with the current regulatory framework.” Lugh’s capital is €10,000.

It’s not the first euro stablecoin. In terms of regulated ones, Raiffeisen Bank has its euro RBI Coin, created in association with Billon, which holds an e-money license. And German bank Bankhaus von der Heydt partnered with Bitbond for a stablecoin on the Stellar network.

Other companies involved in the Lugh solution include French Tezos developer Nomadic Labs (which also has a SocGen link) and SCEME, which developed Lugh’s stablecoin platform.

Meanwhile, the European Union is currently considering its draft regulations for Markets in Crypto-Assets (MiCA). The European Central Bank responded to the draft stating it’s keen to ensure that central banks have veto rights over stablecoin issuers. It also has concerns that stablecoins could cause problems because bank interest is in negative territory in the Euro area and holding stablecoins is cost-free. In other words, stablecoins might prove more attractive compared to bank accounts.

However, that begs the question: what’s the business model for the stablecoin issuer given it has to keep deposits in a bank account? This is perhaps why Lugh is emphasizing blockchain applications.

BoT warns against any use of THT stablecoin

BoT warns against any use of THT stablecoin

The Bank of Thailand is warning people to refrain from participating in any activities involving Thai Baht Digital (THT), as there are no legal assurances or protection with it and users could be at risk of cybertheft or money laundering.

Pruettipong Srimachand, the central bank’s assistant governor of the legal group, said any activities involving the new stablecoin THT that was created abroad on the Terra platform are considered illegal. The creation, issuance, usage or circulation of any material or token for money is a violation of Section 9 of the Currency Act 1958.

The central bank said recent developments have seen the private sector attempting to create cryptocurrencies using underlying assets or fiat currencies as an anchor to minimise price volatility. Such cryptocurrencies are known as stablecoins.

More recently, a new form of stablecoins using underlying algorithmic smart contracts was created to replicate the price and movement of various currencies. One unit of the stablecoin THT is denominated in and valued at one baht. Although THT is not used as a medium of exchange, it could cause fragmentation of the Thai currency system should THT or other stablecoins come to replace, substitute or compete with baht issued by the central bank, he said.

“Such usage would ultimately affect the general public’s confidence in the stability of the national currency system, which is the cornerstone of all economic activities,” said Mr Pruettipong.

In a separate development, the Bank of Thailand announced it plans to stop using Thai Baht Interest Rate Fixing (THBFIX), the existing reference rate which incorporates the London Interbank Offered Rate (LIBOR) for interest rate calculation, after June 30, 2023, in line with the upcoming plans to phase out the LIBOR.

The central bank is the THBFIX regulator and it uses the US dollar LIBOR format to calculate rates. The bank announced it will inform commercial banks of the terms of the THBFIX rate through existing channels until its usage comes to an end.

The Bank of Thailand plans to stop new TBHFIX-based financial calculations including loans, debentures and derivatives from July 1 of this year.

Anchor Launch Puts UST in the Stablecoin Race Against DAI

An upstart stablecoin issuer out of South Korea is making a run at MakerDAO’s DAI, the fourth-largest cryptocurrency in this category.

Terraform Labs just launched Anchor, a long-awaited protocol for lending and saving that the Seoul-based firm expects to drive enough demand for its stablecoin, TerraUSD (UST), to top DAI’s circulation. Like DAI, UST maintains its peg to the U.S. dollar in a decentralized manner, but at $1 billion, its market capitalization is only about a third of its rival’s.

To enhance the stablcoin’s allure, Anchor aims to offer returns that outperform other decentralized finance (DeFi) offerings with a combination of sheer yield and predictability. It’s all driven by validation rewards (the equivalent of freshly minted bitcoin awarded to that currency’s miners) from Terra’s own blockchain, and will eventually pool such rewards from other chains.

If Anchor gains traction, it could represent a significant DeFi play that ultimately does not run on the Ethereum blockchain, which basically has a monopoly on that piece of the industry.

“By tapping into a diversified set of staking yields you’re able to produce yields that are highly stable and attractive,” Do Kwon, a cofounder of Terraform Labs, said in an interview.

Since its debut in late 2020, UST has already surpassed the Paxos Standard (PAX) and the Gemini Dollar (GUSD), both of which are backed by fiat currency held in real-world banks and subject to intervention by their issuers.

But DAI remains the top stablecoin for users who prefer a cryptocurrency that can’t be blocked or frozen by a central authority and generally holds its value, with a $2.8 billion market cap.

“If you let Anchor do its run for a couple months, I think we should be there,” Kwon predicted.

“When the market takes a downturn, a lot of those highly volatile crypto assets will be sold off for UST and then staked in Anchor for a savings account,” says Do Kwon, a cofounder of Terraform Labs (Terraform Labs, modified by CoinDesk)

What is Anchor?

Think of Anchor like the savings account your parents set up for you as a kid, but without the anemic returns typical of U.S. bank savings accounts today.

It’s no secret that, over the last year or so, returns in DeFi have been strong to the point of somewhat unbelievable. Still, even on the most mainstream offerings, such as the money market Compound, returns can fluctuate from one week to the next.

Returns for depositing DAI on Compound have ranged from 3% to 12% roughly since the new year. Returns for supplying USDC have ranged from 3% to 14%.

Anchor advertises a 20% return on deposits made in UST, though it’s unclear yet what kind of guarantee is made there.

On the lending side, Anchor will accept as collateral only staked tokens that earn returns. Starting with bLUNA (the token that represents the staked version of the Terra blockchain’s LUNA governance token), a user can borrow half of the value of their staked LUNA.

On certain newer blockchains, the entities that validate transactions stake, or pledge, assets as a way of guaranteeing the quality of their work. This allows the blockchain to use less energy (a hot-button issue of late), but it remains secure because if the stakers are found to validate badly, their assets can be taken or slashed. Each of these blockchains has a native coin that’s used for staking. On Terra, that’s LUNA; on Cosmos it is ATOM, etc.

So a user could stake $200 worth of LUNA to the network, then pledge that much in bLUNA as collateral to borrow $100 from Anchor. While the loan is active, Anchor will earn staking rewards on all $200 worth of bLUNA plus the interest on the loan. The combination of staking rewards and interest should enable Anchor to pay out a higher return to its depositors.

A token that represents a stake, such as bLUNA, is in effect a derivative. Anchor will soon accept as collateral such derivatives for other base layer protocols’ native tokens, such as polkadot (DOT), solana (SOL), staked-Ethereum (stETH) and cosmos (ATOM).

“In the world of blockchains there isn’t any source or yield that you’re going to get that’s more stable than what the base layer is going to give you,” Kwon said. “If we’re going to define a new monetary policy from these blockchains I think it’s going to come from that base layer and that is the staking yield.”

Luna stakers and borrowers in the Anchor ecosystem will get the additional benefit of liquidity mining. They will receive Anchor’s governance token, ANC.

How does TerraUSD stay at $1 without a central authority?

UST is held stable to its peg with the greenback under a seigniorage system. Terra also has stablecoins pegged to track currencies the South Korean won and Mongolian tugrug, along with the International Monetary Fund’s Special Drawing Rights (SDRs).

The supply of each of the stablecoins is regulated by the governance token, LUNA. When demand for UST gets too high, new UST gets issued and it can be purchased for $1 in LUNA. This allows arbitrageurs to buy the UST at a discount to the market price and sell the UST immediately at a profit.

If demand weakens for UST, LUNA will be released to the market and exchanged for UST, to be burned.

Validators on the Terra network have to stake LUNA (which creates bLUNA). These validators are rewarded by collaboratively serving as oracles for the price of the dollar in LUNA. Validators also earn small fees on transactions in UST.

The overall design is fairly similar to that of Basis, the Silicon Valley-backed stablecoin that ultimately closed down, citing regulatory issues, and returned all the funds invested.

UST can be found on Solana and Ethereum, but it is native to its own Terra blockchain, which runs on the Tendermint consensus model. Part of the Cosmos ecosystem of blockchains, Terra will eventually move to be interoperable with other Tendermint-based chains sometime after the Inter Blockchain Communication (IBC) protocol is enabled.

The big vision

Terra’s stablecoins were created as a way for e-commerce giants in Southeast Asia to escape credit card fees. Its payments app, Chai, hit two million users late last year.

Mobile-first payments have been huge in China. Kwon saw the potential but realized another facet was needed: a way to make saving money really worthwhile. That’s worked well for Alipay’s money market offering, for example.

Terra raised a fresh $25 million in January on the strength of its product offerings.

Anchor makes the third leg of the stool for UST demand. After Chai, Terraform Labs built Mirror, a marketplace for synthetic U.S. equities, which currently has 1.25 billion UST staked on it. It’s a way to bet on the prices of Apple, Tesla and the like without buying the actual stocks.

Anchor will first be offered on CoinList, a platform mainly for token issuance, but the product is designed to be integrated into other applications, just as the Unicorn startup Stripe has made fiat payments easy to add on desktop and mobile applications. With the Anchor software development kit (SDK), the product can be added to exchanges, wallets and other parts of the crypto market infrastructure.