Celo Euro (CEUR) stablecoin overview
Nevertheless, over the past few years, new types of stablecoins have appeared on the crypto market, including those tied to the euro exchange rate. One of them is the Celo Euro (CEUR) token, which will be discussed in this article.
What is Celo Euro?
Celo Euro, or CEUR, is a euro-linked stablecoin issued on Celo's own blockchain in 2021. The CEUR stablecoin is part of Celo's blockchain platform ecosystem focused on the communications market. Not many blockchains have issued proprietary stablecoins, and Celo is just one of them.
CEUR is part of a family of stablecoins issued on the Celo blockchain called Mento. In addition to the Celo Euro, the Mento family includes the Celo Dollar stablecoin, which is pegged to the U.S. dollar exchange rate.
In addition to CEUR and CUSD, the Celo team has also released stablecoins:
- cREAL,
- eXOF,
- cKES.
How is Celo Euro issued, and what is it backed by?
One of the most critical indicators for a stablecoin is the reserve with which the asset is backed. Any stablecoins are subject to the risk of depegging, a situation in which the token deviates significantly from the exchange rate of the currency to which the asset is pegged. With no collateral, investors can suffer considerable losses in the event of a rate decoupling. However, with sufficient collateral, investors can be compensated in full.
CEUR Stablecoin is backed by a portfolio of cryptocurrencies that consists of:
Data on Celo Euro reserves is provided by the platform itself: all assets intended to secure CEUR are in special wallets whose addresses are open to everyone.
According to the official Celo website, the reserves are 3.93 to 1, which means that all the stablecoins are secured by 393%. Therefore, even with a significant drop in the exchange rate of cryptocurrencies held in Celo's reserves, the amount of assets will still be enough to secure CEUR in case of a loss of parity to the euro. In addition, the custodians of the reserves strive to maintain a diversified portfolio of digital assets and rebalance them regularly, minimizing the impact of cryptocurrency volatility.
The Celo issuance process is decentralized, which happens automatically through the platform's smart contract. The Celo Euro stablecoin is issued by burning CELO tokens, another cryptocurrency the Celo platform team issued. This mechanism has flaws identified in the failed UST (now USTC) stablecoin. TerraUSD had a similar mechanism for issuing stablecoin, but there are significant risks of rate collapse when using volatile assets. However, Celo developers minimized the risk of using collateral through a constant-product-market-maker mechanism. CEUR tokens are burned through redemption, after which users receive a CELO token in return.
What is Celo Euro used for?
Like any stablecoin, CEUR fulfills two primary purposes:
- Protection against the volatility of cryptocurrencies. The value of digital assets is calculated in U.S. dollars, euros, and other currencies and tends to change rapidly: the price of cryptocurrencies such as Bitcoin, Ethereum, BNB Coin, and others can rise or fall by tens of percent in just one day. Stablecoins like Celo Euro serve as a tool for investors to transfer their funds into more stable assets. This can be done relatively quickly through their own (non-custodial) cryptocurrency wallet thanks to the wide variety of decentralized exchanges (DEXes) on the DeFi market, i.e., without transferring assets to centralized exchanges and spending more time.
- Another purpose of stablecoins is for transfers. Various difficulties can arise with international transfers, such as a bank's lack of support for a particular currency or economic sanctions. Stablecoins are devoid of restrictions, and users can transfer any amount to another wallet anywhere in the world without fear that the asset's price may change significantly.
The developers of the Celo platform are developing payment solutions for the Web3 market, for which, among other things, the CEUR stablecoin is used. Celo's primary focus is mobile payments. The platform uses a unique identification model that allows you to link your phone number to a cryptocurrency wallet. The Celo team aims to make mobile crypto payments as easy as sending text messages in messengers. Due to this feature, Celo is called "WhatsApp for money."
Weaknesses of Celo Euro
The main disadvantages of the CEUR stablecoin are its low liquidity and small capitalization, which is only $5.9 million. Celo Euro's total daily trading volume on all markets is only about $2.5 million, and most of it falls on the decentralized exchange Uniswap.
With such low liquidity, the risk of rate decoupling becomes very high. It is worth noting that CEUR is quite volatile for stablecoins, and its rate has already repeatedly deviated from the euro price. Moreover, this started to happen only a little time after the listing in June 2021. The most robust deviation was recorded in November 2022, when the price of CEUR fell to ˆ0.96. Nevertheless, the Celo Euro exchange rate has returned to average values each time and remains stable as of July 2024, indicating that this stablecoin is quite reliable.
