How EU regulation of stablecoins can lead to financial innovation

Written by Swarm co-founders, Timo Lehes and Philipp Pieper

Stablecoins are essentially tokenized forms of fiat currency. They act as an entry point for people to move on chain and, at times, have been safe haven assets for those who want to escape the volatility of crypto-native tokens like bitcoin and ether. Stablecoins are gaining importance as blockchain-based products are becoming a part of consumers’ daily lives because they are digital cash and generate additional benefits in comparison to traditional financial products. There are a variety of different stablecoins available and algorithmic coins use a series of complex algorithms, crypto-asset reserves and tokenomics to maintain the peg of a stablecoin to its underlying fiat currency. But algorithmic stablecoins have faced challenges in tough market conditions. The largest collapse of an algorithmic stablecoin was the Terra/Luna blow-up in Spring 2022 when an estimated $60 billion got wiped from the digital assets market. Now, asset-backed tokens have emerged as a preferred option for …