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 paves path for legal stablecoin
The Bank of Thailand is in the process of developing a Retail Central Bank Digital Currency.
The Bank of Thailand is open to legal digital currencies and plans to issue a consultation paper on stablecoins within the first half of this year.
Siritida Panomwon Na Ayudhya, assistant governor of payment systems policy and financial technology at the central bank, said the bank has only approved baht-backed stablecoin businesses, meaning those classified with electronic money (e-money) licences.
“There are many operators applying for the central bank’s approval to issue baht-backed stablecoins under several business models. Some want to expand from existing e-money businesses, while others want to develop new innovative financial services,” she said.
The Bank of Thailand has already set out appropriate guidelines for the regulation of financial services involving stablecoins, focusing only on legal baht-backed stablecoins, said Ms Siritida.
These are cryptocurrencies designed to minimise price volatility by being pegged to the baht and are intended to be used as a means of payment. Such stablecoins may be classified as e-money under the Payment Systems Act of 2017.
The regulator oversees risks associated with e-money, such as settlements, money laundering, cybersecurity and consumer protection risks. Operators who intend to provide services involving baht-backed stablecoins are required to consult with the central bank before beginning any operations. This policy is in line with the regulatory guidelines in many countries, such as Britain, Singapore and Japan, she said.
Other forms of stablecoins (including foreign currency-backed stablecoins, asset-backed stablecoins and algorithmic stablecoins) are not illegal, said Ms Siritida. The central bank is open to receiving comments and feedback before enacting the appropriate regulatory guidelines, she said.
The central bank’s move to clarify the stablecoin business in Thailand comes after it warned people to refrain from participating in any activities involving Thai Baht Digital (THT), as there are no legal assurances or protections and users could be at risk of cybertheft or money laundering.
Any activities involving the new stablecoin THT (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 in a statement on Wednesday.
Ms Siritida said the Bank of Thailand sees the benefits of financial technology and is ready to embrace new innovations to improve financial services. In this regard, the central bank is in the process of developing a Retail Central Bank Digital Currency (Retail CBDC) to meet the needs of the general public, improve service efficiency in the business sector and increase access to financial services.
The central bank is scheduled to issue a direction paper on Retail CBDC next month and hold a public hearing process. The development of both Retail CBDC and the existing Wholesale CBDC will proceed hand-in-hand, she said.
“The central bank will continue to closely monitor the developments of new technologies, taking into account the benefits and related risks in an effort to adopt policies supportive of promoting economic development while maintaining financial system stability,” said Ms Siritida.
The central bank’s assistant governor Pruettipong Srimachand insisted yesterday THT is considered illegal and that it intends to replace the baht because one unit of THT is denominated in and valued at one baht.
“Given the offshore platform of Terra, the Bank of Thailand’s regulations do not cover THT,” said Mr Pruettipong.
“We would ask for collaboration with regulatory bodies overseas to manage the risk.”
Apart from the baht, nine other currencies worldwide are credited on the Terra platform.
THT has logged around 1,000 transactions accounting for tens of thousands of baht.
In the event of fraud using an illegal stablecoin currency, investors must deal with the risks themselves, he said.
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.