Autor Cointelegraph by Christina Comben

“Investments change fast; human nature and human aspirations stay constant.”That’s how Meir Statman, behavioral finance pioneer and professor of finance at Santa Clara University, explains one of investing’s oldest puzzles. And it may be why every crypto cycle so far has been about chasing the next hot narrative rather than fundamentals, whether its DeFi, meme coins or decentralized compute.In an industry that has spent years maturing into an ecosystem of institutional investors, revenue-generating protocols and real-world use cases, investor attention still gravitates toward the next shiny thing that can offer the promise of outsized returns.“Crypto is still a young asset class, and price discovery in young markets tends to be driven by attention before it’s driven by analysis,” Samar Sen, head of international markets at Talos, tells Magazine.“A new narrative gives investors a simple story to underwrite quickly, while assessing the fundamentals of an established protocol takes real work, from understanding usage and revenue to token design and competitive position.”This behavior isn’t unique to digital assets; it’s just particularly pronounced in an industry that prizes memes over sustainable business models.A Pokémon card, a digital asset and a tech stockA recent MarketWise study compared hypothetical $10,000 investments across cryptocurrencies, stocks, exchange-traded funds and collectibles between January 2021 and April 2026.The study found that a sealed Pokémon card box outperformed Bitcoin, while a pair of limited-edition sneakers nearly matched Dogecoin’s returns. At the same time, some of Wall Street’s most popular artificial intelligence funds lagged the broader stock market despite AI dominating the investment headlines.A $10K investment has very different outcomes. Source: MarketWiseWhat does a Pokémon card, a digital asset and a tech stock have in common? According to Statman, they’re driven by the same thing: investors aren’t simply looking for the best asset; they’re buying a lottery ticket to a life-changing outcome.Investors are chasing transformation, not cryptoTraditional finance tends to assume that investors want to maximize returns while minimizing risk, but Statman argues that people often invest for a very different reason.In an unpublished paper shared with Magazine, Statman argues that many investors mentally divide their wealth into two layers. The first is a “not-poor” layer, which is designed to preserve their standard of living and avoid falling into poverty. The second is a “be-rich” layer, which is for transformative goals, like buying a house, becoming financially independent, or fundamentally changing their circumstances.Within that framework, concentrated investments aren’t necessarily irrational; they exist because diversified investing, while statistically sensible, may never offer someone with limited capital a realistic chance of achieving those goals.James Royal, a senior writer at MarketWise, tells Magazine:“The asset class may change, but the behavior barely does… Investors aren’t exactly loyal to crypto, stocks or collectibles. Their loyalty is to whatever promises lucrative returns next.”Statman says that, while some of today’s investors pin their hopes on meme stocks, “a century ago it was railroad stocks […] today’s investors are simply expressing the same aspirations through a new asset class.”Investors aren’t becoming more tolerant of risk, however, just more willing to accept volatility for a chance of life-changing wealth.“Investors aren’t necessarily on the hunt for risk, but they’ve got a case of FOMO on the next life-changing return, and that can lead them down a path of underestimated downside risk,” Royal says.Why stories beat fundamentalsIf investors are searching for transformation rather than simple returns, that helps explain why narratives so often overwhelm fundamentals, particularly in crypto.The decentralized finance sector is a case in point. Despite some of its largest protocols like Aave or Uniswap generating substantial revenue, attracting billions of dollars in deposits and processing enormous trading volumes, their tokens struggle to capture the same excitement as newer narratives built around the latest craze.Aave’s token was trading at around $98 at the time of writing, some 85% from its 2021 peak, but its TVL is over $14 billion, and had reached over $37 billion at the height of the bull market in October 2025.Aave’s TVL is over $14 billion while its token price is 85% from its 2021 peak. Source: DeFiLlama.Thomas Probst, a research analyst at Kaiko market data provider, says that while assets may outperform in the short term, fundamentals will always be more important in the long term.“Market fundamentals continue to play an important role, particularly resilience, liquidity, and volatility… [an asset’s] ability to establish itself over time also depends on the robustness of its market structure,” he says.Yet, while a mature protocol generating sustainable cash flow may be an attractive long-term investment, it offers little appeal to investors allocating money toward their “be-rich” bucket. A token that might double over several years will always struggle to compete with the possibility, however remote, of a 100x moonshot.“Investors like to confuse a great technological breakthrough with a great investment opportunity,” Royal says, which might explain why many AI-focused ETFs have underperformed, despite AI arguably becoming the defining investment narrative of our time. “The real skill isn’t identifying exciting investments, it’s recognizing when optimism has already been priced in.”That same skill comes in handy with market timing. MarketWise’s report found that investors who bought Bitcoin in January 2021 turned a hypothetical $10,000 investment into more than $24,000 by April 2026, with +141% gains.Those who bought during its cycle peak in October 2025, however, saw the same investment shrink to just over $6,000 with a -38% return by April (and it’d be worth about $5,000 today).Anyone who FOMO’d into AAAVE around the same time would be sitting on +85% losses today.Institutions play a different gameInstitutional investors approach investing from an entirely different perspective, Sen says:“Institutional mandates simply don’t allow for chasing outsized, speculative returns. Institutions are underwriting risk-adjusted performance, liquidity, custody arrangements and operational resilience long before they look at upside potential.”AAVE’s price performance since 2021. Source: CoingeckoAnd while that doesn’t mean institutions are immune to emerging narratives, they generally look at whether the underlying infrastructure can support meaningful capital allocation rather than whether the token could 100x.“It’s usually a mix, and the order matters,” Sen says. “Most of these themes, DeFi, AI, memecoins, do start with a genuine shift: a real technical unlock or a new use case that wasn’t possible before.” Once the narrative begins attracting speculative money, however, prices often move faster than fundamentals, he says.“Investors arriving later in a cycle are often responding to the narrative as much as the fundamentals that started it […] Institutional capital, which tends to move on process and discipline rather than trend-following, is often a step behind the initial narrative and a step ahead of the correction.”The next Bitcoin isn’t really the pointThe search for the next life-changing investment is unlikely to disappear, and neither, Statman argues, is the human desire to improve one’s circumstances.The next 100x token certainly exists, and investors will continue to seek it — even when the odds and fundamentals say they’re looking in the wrong place.Magazine: The real reason DeFi projects that survived 2022 crash are shutting down nowCointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Some articles contain affiliate links, from which Cointelegraph may earn a commission. These relationships do not influence which products we review or our editorial conclusions. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

When DeFi dashboard Zapper announced this month that it would shut down after nearly seven years, it joined a growing list of decentralized finance projects that have folded in 2026. Bitcoin DeFi platform Botanix, Solana portfolio tracker Step Finance, DeFi analytics platform Parsec and DEX aggregator Odos Protocol also wound down or are winding down this year after multiple market cycles.The carnage isn’t limited to DeFi — RootData has tracked 101 “dead” crypto projects in total this year as of July 26 — but it accounts for more than half the cadavers.Is it simply a case of bear market blues, or is there more to it than meets the eye? Botanix’s founders pointed to weak demand when announcing the platform’s closure, and told Cointelegraph in June that onchain activity consolidating around a few venues like Hyperliquid and big centralized exchanges hastened Botanix’s decline.While complaints the overall industry is consolidating into a fewer, larger venues are common, Artemis Research’s Alex Weseley tells Magazine that’s not the case in DeFi:“The prevailing narrative has been that concentration is increasing in DeFi, caused by a series of exploits and capital rotation into the most ‘Lindy’ protocols. But the data disagrees.”So, why are projects that survived the collapse of Terra, the implosion of FTX and the grip of Chokepoint 2.0 shutting down today? If the 2022 bear market didn’t kill these DeFi protocols, what is it about the 2026 market structure that is finishing them off?Capital has rotated rather than exitedAccording to Artemis data, concentration across tracked DeFi protocols has actually drifted lower since 2024. And while each major sector still has one dominant player like Uniswap in decentralized exchanges, Aave in lending and Jupiter in perpetuals by locked capital, “every one of those leaders holds a smaller share of its sector now than it did two years ago,” Weseley explains. Liquidity concentration by sector (TVL Herfindahl index). Source: ArtemisHe argues that onchain activity has shifted into different corners of the crypto economy rather than leaving the ecosystem altogether. “The economics didn’t disappear; they rotated to adjacent apps (Hyperliquid, Polymarket, pump.fun), so classic DeFi viability shrank even as total onchain fee generation stayed high.” Related: Mark Cuban-backed DeFi dashboard Zapper shutters after 7 yearsIn this view more protocols are competing for a slice of the pie, making each slice smaller.Markus Levin, co-founder of blockchain infrastructure company XYO, says today’s landscape holds little resemblance to the early days of DeFi.“The DeFi space is much more competitive than it was during the last bear cycle,” Levin tells Magazine.“Early DeFi projects benefited from first-mover advantage and a relatively small field of competitors. Now, there are thousands of protocols competing for the same users and liquidity.”Wesley explains it’s more instructive to look at revenue generation to work out where economic activity is occurring in DeFi, rather than the more common measure of total value locked (TVL). “TVL is the right tool for the narrow ‘liquidity’ question but misleads elsewhere,” Wesley says.“Fees and revenue are best, because they measure economic viability directly and expose shifts that TVL and headline usage hide.” Artemis estimates the number of DeFi applications generating at least $1 million in monthly fees climbed to around 33 or 34 in mid-to-late 2025 before falling back to roughly 25 or 26 during the first half of 2026. The number generating more than $10 million in monthly fees roughly halved over the same period.The rules for attracting capital have changed DeFi risk management firm Gauntlet argues the broader market remains healthy, despite numerous DeFi protocols shutting down this year.“Demand is the strongest it has ever been,” Nicholas Cannon, chief business officer at Gauntlet, tells Magazine. “Stablecoin supply keeps growing, and traditional finance is moving toward DeFi rather than away from it.”101 crypto projects have died so far in 2026 alone. Source: RootDataAccording to Gauntlet, the defining change since the previous market slump is that investors have become more selective and aren’t as easily distracted by short-term yield farming token incentives.“What changed is that capital got discerning. In previous cycles, liquidity followed incentives wherever they pointed. Today it follows sustainable yield, track record, and curation. Incentives still have a role in bootstrapping, but they no longer carry a protocol on their own.”Levin says that institutional capital in particular is more selective in 2026, favoring platforms with established track records over protocols luring users with shiny token incentives.“The projects that survive this cycle are likely to be the ones that already have meaningful user distribution or can reach users beyond the traditional DeFi audience,” he said, and that may prove to be a tougher test than the bear market itself.Tokenized assets, stablecoins and emerging areas such as agentic DeFi are examples of where new experimentation is taking place.Related: ARK pushes back against a16z’s ‘TradFi wants blockchain, not DeFi’ claimInfrastructure is consolidating while innovation moves higherOne consequence of the industry’s maturation, Cannon said, is that fewer teams are trying to build the next Aave or Uniswap. Instead, they’re using established DeFi infrastructure as a foundation for their products and services. The trend is also reflected in where investment dollars are flowing. DeFi lender Morpho announced a $175 million raise to bring institutional lending onchain in June, one of the sector’s largest fundraises, while agentic DeFi startup Alpaca raised $135 million in July to build infrastructure for AI-powered financial applications. Monthly protocol fees: Classic DeFi vs new-guard apps. Source: ArtemisMorpho Labs co-founder Merlin Egalite says the next generation of successful protocols will increasingly focus on distribution rather than competing directly with established infrastructure.“The protocols growing fastest will be the ones embedded into the platforms where users already are. Fintechs, wallets, exchanges building on top of you rather than competing with you.”Egalite also argues that future growth will come from making DeFi infrastructure easier for traditional financial firms to adopt.“The next wave of growth comes from fintechs, banks, and platforms that want to embed DeFi infrastructure without rebuilding it,” he says.Magazine: Fears of AI-driven DeFi hack epidemic overstated for now — but not for longCointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

The long-awaited US Digital Asset Market Clarity Act (CLARITY) has hit another snag. This time, it’s not software developers or the turf war between federal regulators at stake, but the thornier question of ethics — ironic, given many politicians’ demonstrable disdain for them.After months of negotiations and what Coinbase’s chief executive Brian Armstrong called “thousands of hours of work on both sides,” disagreement over a code of conduct could make or break CLARITY once and for all.Pretty much everyone agrees the United States needs clearer rules around digital assets. But negotiators are divided over whether the bill’s ethics provisions are strong enough, and, more importantly, who should enforce them.Democrats worry the current proposal relies too heavily on the Department of Justice, arguing state attorneys general should be able to step in if the DOJ fails to enforce the law. In a joint statement Wednesday, seven Democratic senators said the Republican proposal “falls short.”“Key provisions including those addressing ethics for elected officials, consumer protection, illicit finance, conflicts of interest and market integrity must be strengthened,” the senators said.For their part, Republicans are pushing to keep enforcement of the ethics provisions with the DOJ, arguing that federal rules should be enforced through a single national framework. Attorney and former Republican Senate candidate John Deaton said Wednesday:“The CLARITY Act is federal legislation… The Department of Justice – not fifty different state AGs with fifty different political incentives and fifty different interpretations – is the appropriate body to enforce federal law.”Can lawmakers find a middle path before the bill reaches the Senate floor, or has the ethics debate become CLARITY’s biggest obstacle yet? What the latest ethics proposal actually does The latest Senate draft made public Wednesday would prohibit the president, vice president, members of Congress and other senior federal officials and their spouses from issuing or sponsoring digital assets while in office. Democrats oppose current CLARITY text. Source: Senator Ruben GallegoThat means future presidential meme coins would be off the table, at least temporarily, with no Trump 2.0 or Melania 2.0-style token launches while the restrictions are in play. Related: CLARITY Act could help CFTC deal with prediction markets: LawyerThe proposal would also prevent crypto platforms from listing assets issued or sponsored by covered officials. Restrictions would expire in 2029, after President Donald Trump’s current term ends, though covered officials would still be permitted to own cryptocurrencies.Democrats say current proposal falls shortDemocrats have made it clear the text needs additional work before gaining their support, but getting CLARITY over the line isn’t doomed; they’ve also signaled a willingness to see the bill through to the end. “We have been working in good faith with our Republican colleagues for the past year and will continue doing so to get this over the finish line,” the senators said.Senator Angela Alsobrooks said negotiators were “fairly close” to reaching an agreement during a Semafor event on Wednesday, despite warning the ethics provisions remained a dealbreaker. The Maryland Democrat said:“Although I have been supportive to this point, I absolutely will not support on the floor any legislation that does not include provisions around ethics.”Her main concern is not only the substance of the rules, but who would enforce them.“It’s an absolute that we cannot completely rely on the DOJ, given what we’ve seen of their inability and their unwillingness to enforce the law,” Alsobrooks said.The debate has been fueled by Trump’s rapidly expanding crypto business interests spanning meme coins, World Liberty Financial and other digital asset holdings.Related: Trump claims he can ‘future proof’ crypto regulation with CLARITY ActThe President’s crypto ventures have reportedly generated $1.4 billion on paper, prompting Democrats to argue stronger safeguards are needed to address potential conflicts of interest. Senator Elizabeth Warren has focused on whether the restrictions go far enough, with the Massachusetts Democrat saying that the latest draft “does nothing to stop President Trump from making his next $1.4 billion from crypto.”Former SEC official Amanda Fischer also argued the draft would still allow Trump to benefit from his existing projects, with limited restrictions on future crypto income streams.Republicans say proposal already unprecedentedRepublicans reject the idea that the ethics provisions are weak. Senator Bernie Moreno described the draft as containing “the most powerful ethics language in US history,” pushing back against Democratic claims that the provisions are insufficient.The latest CLARITY Act text. Source: US Congress.Patrick Witt, a former White House and Senate counsel, said Democratic opposition appeared to rest on one of two positions: either that ethics rules without state attorneys general are “meaningless,” or that they fail to penalize President Trump for past crypto activity.“If you hold position (1), then you are basically saying that ALL current federal ethics laws are meaningless because none of them are enforceable by state AGs,” he said. “If you hold position (2), then there is literally nothing that can be done to appease you because what you are advocating for is blatantly unconstitutional.”Others argue that, even if the legislation is imperfect, passing it would be preferable to preserving the status quo. Andreessen Horowitz co-founder Chris Dixon said the US has a similar opportunity to the early internet era, when lawmakers established rules that allowed innovation to flourish rather than forcing new technology into outdated regulatory frameworks. While acknowledging that “no law is perfect,” Dixon argued the CLARITY Act would deliver long-overdue consumer protections and provide regulatory certainty for blockchain innovation in the US.Can lawmakers find a middle path?Despite stumbling over the ethics hurdle, most industry and policy observers still believe a deal remains in reach. Kristin Smith, former chief executive of the Blockchain Association and now president of the Solana Policy Institute, sees that the latest draft is already a meaningful compromise.“The new text includes a substantive, one-of-a-kind ethics provision, a necessary step to win the support of Senate Democrats,” Smith told Cointelegraph.“But ethics is far from the only thing at stake. The Senate has added a full disclosure regime, an entire illicit finance section, and improved spot market regulation.”Smith warned that rejecting the bill in pursuit of stronger ethics language could leave lawmakers stuck with no market structure legislation at all.“There is no version of a ‘no’ vote that produces a stronger bill,” she said. “A ‘no’ vote produces no bill at all: no disclosure regime, no illicit finance protections, no spot market improvements, no ethics provisions, nothing.”Vincent Chok, co-founder and chief executive of stablecoin issuer First Digital, said the fact negotiations have narrowed to ethics rather than the broader structure of the bill is itself a sign of progress.“The core debate is no longer whether digital assets need a regulatory framework, but how to finalize one that commands broad support,” Chok told Cointelegraph.He said that while no regulatory framework is likely to be perfect from day one, businesses can adapt to clear rules that evolve over time. Prolonged uncertainty makes long-term investment and product development far more difficult, he said.Salman Banaei, head of public policy at Plume, a blockchain network focused on tokenized real-world assets, also believes a compromise remains possible, although he cautioned that the White House’s initial ethics proposal “is not a good starting point.”For now, both sides appear to agree on one thing: a compromise is still possible, but exactly what it looks like remains the biggest unanswered question. Magazine: Will the crypto lobby’s $189M campaign get CLARITY over the line?Cointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

A wave of high profile crypto hacks in April that many suspected had been orchestrated using sophisticated AI tools to identify smart contract exploits, led to fears that every DeFi protocol was suddenly at risk.In May, Manuel Aráoz, founder of the blockchain security platform OpenZeppelin, declared “all of DeFi unsafe” following $630 million in crypto losses from exploits in April.But even as the industry braced for the scenario of DeFi protocols falling like dominoes to agentic AI, the stream of attacks seemed to ebb. That led Dragonfly managing partner Haseeb Qureshi to declare recently that fears of a DeFi “hackpocalypse” were a “false alarm.” He pointed out that even including April’s big hacks, the year to date has seen “a lower rate of hacked $ per month” and that the “median hack size by year is also declining.”So who’s right? Are the fears of an AI driven hacking epidemic totally overblown, or is this just the lull before the storm?“I think the ‘hackpocalypse’ narrative is overstated if it suggests AI has already replaced compromised keys, weak infrastructure and human error as the main causes of Web3 losses,” Stephen Ajayi, Hacken’s leading offensive security engineer, tells Magazine.But he adds that doesn’t mean the fears are entirely misplaced.“I would not confuse ‘not dominant yet’ with ‘not coming.’ My view is that we are still in the early stages: the hype is ahead of the incident data, but the capability curve is catching up quickly,” Ajayi clarifies.AI is changing attacks, even if it isn’t causing themWeb3 protocols lost more than $1.3 billion across 344 security incidents in the first half of 2026, according to CertiK’s H1 report. It’s impossible to say how many of those incidents involved AI-identified or assisted exploits. Natalie Newson, senior blockchain investigator at CertiK, explains that “proving whether AI was used to find an exploit can be difficult.”Related: AI-driven hacks could kill DeFi — unless projects act nowRather than looking for direct attribution, Newson says she watches for circumstantial evidence like changes in attacker behavior. She notes there’s been a large increase in older smart contracts and unverified contracts being exploited. CertiK’s report found that 73 code vulnerability incidents in the first half of 2026 had been deployed for at least a year before being exploited. “In 2025 as a whole this number was 45,” Newson says. This suggests AI is helping attackers analyze far larger volumes of code than was previously practical.Instead of inventing entirely new attack classes, AI appears to be making existing ones cheaper, faster and easier to scale.Monthly change in crypto exploit amounts and number of incidents across H1. Source: CertiK“AI systems can help analyze codebases, identify patterns associated with known vulnerabilities, flag suspicious logic, summarize complex code, and prioritize areas for deeper review,” Newson says. “An attacker, or a defender, can examine far more contracts in a given amount of time,” she said, meaning that older codebases may now be at risk.The real danger is scaleBlockchain data platform Chainalysis also sees AI’s biggest impact as being a multiplier for activity, thereby industrializing familiar forms of crypto crime.Sully Hanif, head of UK public sector at Chainalysis, tells Magazine, “Our 2026 crypto crime report found that AI-enabled crypto scams are 4.5x more profitable than traditional scams, extracting $3.2 million per operation versus $719,000.” “AI is enabling scammers to reach and manipulate far more victims simultaneously.”The danger does not just come from smart contract exploits. Chainalysis found that impersonation scams increased more than 1,400% year over year in 2025, with criminals using AI-generated deepfakes and face-swapping software readily available on Telegram marketplaces.“We’ve seen AI supercharge existing playbooks,” he says. “The fraud-as-a-service ecosystem now offers modular, turnkey services and AI makes each module more effective.”Related: AI models led to a ‘vulnerability apocalypse’ in crypto security: Immunefi CEOChainalysis recently identified $36.7 million stolen from protocols whose smart contract source code had never been publicly verified. Hanif warns that attackers are using large language models to reverse engineer raw bytecode and identify vulnerabilities at scale.The data: $36.7 million from unverified contracts. Source: Chainalysis“AI is likely to have its greatest impact where human effort has traditionally been the bottleneck,” Newson says. “We’re observing AI being used to impersonate support staff, video calls, influencers […] The biggest risk is that attackers no longer need technical expertise or strong language skills.”So where are the billion-dollar hacks coming from?Looking at the data, the biggest crypto losses of 2026 could have been carried out without the use of AI.CertiK’s report found wallet compromise remained the most damaging attack vector during the first half of the year, accounting for more than $444 million in losses across just 33 incidents.Hacken’s Q2 2026 Web3 security report found that roughly 88% of all value stolen during the second quarter was due to compromised keys, signers and operational infrastructure rather than smart contract bugs, largely driven by the two North Korean-linked attacks against Drift Protocol and KelpDAO.Of the $763,971,791 stolen, 88.3% was traced to compromised keys, signers, and infrastructure. Source: HackenAjayi s that rather than replacing traditional attack methods, AI is amplifying them by identifying vulnerable employees, generating convincing phishing campaigns, analyzing public code and accelerating exploit development. However, compromised governance, poor operational security and weak infrastructure still determine whether attacks succeed.“AI is a new amplifier, but the old security failures still determine how large the blast becomes,” he said.AI changes the battlefield, but not the fundamentalsOf course, AI can also be used as a force for good, and the security industry is deploying it defensively as well. Hanif said investigators are moving from reactive to preventative, and “the tools exist now to stop scams before victims lose money.” “Ultimately, AI is likely to enhance the capabilities of both attackers and defenders,” Newson said, “with the balance of advantage depending on which side is able to integrate and operationalize the technology most effectively.” Magazine: Strategy became a symbol of the dot-com crash: Could history repeat?Cointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Content published in here does not constitute financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals where appropriate. Cointelegraph maintains full editorial independence.

The digital euro is one of Europe’s most contentious financial projects.Supporters see it as a way to preserve the bloc’s monetary sovereignty, reduce its reliance on foreign payment providers, and ensure central bank money survives in an online economy dominated by USD stablecoins.Critics, however, argue the digital euro could be a way for a supranational organization to surveil — and in certain circumstances, even control — the population of Europe.The official view is that: “The digital euro will reduce Europe’s excessive dependence on non-European providers. It will ensure that Europeans can pay with their money — the sovereign money issued by their central bank — in the digital economy,” said Piero Cipollone, member of the executive board of the European Central Bank (ECB).The alternative perspective is that the Central Bank Digital Currency (CBDC) may curtail the freedom of citizens to spend money how they wish.“These are the 8 most dangerous words if you care about freedom: “The digital euro is here to protect Europeans,” said former Deutsche Bank managing director Pius Sprenger.“This is how they will be able to control EVERY euro you spend. Goodbye money. The ECB will decide how much digital money you can have,” said José Vizner, a Spanish financial commentator.So who’s right? The suited Brussels bureaucrats who seem to get a kick out of reading your private messages or the tinfoil hat adjacent cypherpunks who want to separate money and state?What is the digital euro?The digital euro is a proposed digital form of the euro that would be issued by the ECB, making it a digital form of central bank money, or CBDC.The term “CBDC” tends to raise the hairs on the back of the necks of privacy-loving crypto folk, invoking 1984-style vibes of government overreach and surveillance.President Donald Trump signed an executive order to ban CBDCs from the US in January, citing threats to the financial system, individual privacy and the country’s sovereignty. A ban until 2030 was formalized more recently in housing bill legislation. Despite this, the ECB says they’ll do just fine for Europe.Related: US CBDC ban to go into effect without Trump signoff on housing billIt argues the digital euro would give people living in the euro zone another way to make everyday transactions with central bank money as payments move increasingly online; and that it will complement, rather than replace, physical banknotes and coins.Not everyone is sold on the benefits of the digital euro. Source: Pius the Banker“The main reason for issuing a digital euro is to preserve the benefits of cash in the digital era,” Cipellone said in an interview on July 14.That’s nice, except that one of the major benefits of banknotes that is they can be tracked, traced and frozen at will, as Vizner pointed out. “They promise privacy… but it’s money that’s trackable by design.” Why does Europe want one?The ECB obviously isn’t talking up the benefits of spying on everyday payments. Instead, officials argue that as cash use declines, Europe risks becoming more reliant on private or overseas-operated payment systems like Visa or Mastercard.Some policymakers have expressed concern that the continent lacks control over its critical payment infrastructure, with ECB President Christine Lagarde saying in 2025:“The entire infrastructure mechanism that allows for payment, credit and debit, is not a European solution… We need to make sure there is a European offer, just in case.”Consumer groups such as the European Consumer Organization (BEUC) have also highlighted potential benefits for users.Deputy head of communications, Andrew Canning, told Cointelegraph that the digital euro could provide consumers with a “secure and inclusive” payment option that complements existing solutions, particularly for people who face barriers accessing digital payments.Related: South Korea eyes September launch for second phase of CBDC pilot: ReportYet critics argue that the digital euro would give governments and central banks control over how citizens can spend money. These fears are not theoretical, even in Western democracies. During Canada’s 2022 Freedom Convoy protests, authorities ordered banks, crowdfunding platforms and other financial institutions to freeze accounts linked to the blockades.Why do we need a digital euro? Source: ECBEfrat Fenigson, a tech entrepreneur and privacy advocate, said that the digital euro could become “the infrastructure for programmable money, programmable identity and programmable behavior,” warning that “freedom doesn’t disappear overnight. It disappears one permission at a time.”Patrick Schueffel, a professor of banking and finance at the Fribourg School of Management, also warned that CBDCs could significantly expand governments’ ability to monitor financial activity.Are there safeguards?The EU’s own privacy watchdogs have said the project needs strong safeguards, with both the Data Protection Supervisor (EDPS) and the European Data Protection Board (EDPB) saying a high level of privacy and data protection is essential for the digital euro to gain public trust.The ECB’s digital euro privacy materials assure skeptics that offline payments will exist to enable ‘cash-like’ privacy and insist that the bank will not see personal transaction data.Canning told Cointelegraph that the BEUC is “currently happy” with the proposal and that “we trust that consumer safeguards are protected in the final negotiations between EU lawmakers.”However, the ECB’s arguments may not be enough to persuade the doubters.How does the digital euro work?Unlike privately issued stablecoins like Tether or USDC, which are denominated in US dollars, the digital euro would be denominated in euros and issued by the central bank. Consumers would still access it through their regular bank or payment provider.Unlike physical cash, which people hold directly in their wallets, the digital euro would be accessed through electronic wallets and used to make payments in stores, online, or from wallet to wallet.The underlying money would remain a liability of the ECB rather than a commercial bank, which supporters say would give it the same public backing as cash rather than being a claim on a commercial bank’s deposits.Related: Bank of England governor denies Farage lobbying swayed CBDC policy: ReportUnusual bedfellows: Crypto and the banksCrypto and privacy advocates have an unusual ally in the fight against the digital euro, as parts of the banking industry isn’t too keen on it either.They worry a shift to central bank digital euros would reduce bank deposits, forcing them to rethink loans to businesses and consumers.Lorenzo Bini Smaghi, an Italian economist and banker who served on the executive board of the ECB from 2005 to 2011, said, “There is a high risk of financial instability, with strong repercussions for the real economy.”The ECB argues that the design choices have been taken to “minimize any potential risks” to the banking sector. Users would be limited to holding a small amount of digital euros in their wallets at any time to “prevent excessive outflows of bank deposits,” and “as with cash in your wallet, no interest would be paid on digital euro holdings.”Estimated bank deposit outflows by holding limits. Source: ECBHow much will it cost?The cost of implementing a digital euro has become a bone of contention among critics, as the ECB estimates that it will run to around 1.3 billion euros (approximately $1.5 billion) in investment, with ongoing operating costs of around €320 million ($370 million) annually.Commercial banks and other payment providers face steep costs integrating the digital euro into their services. The ECB expects implementation costs for the banking sector of between $4.6 billion and $6.9 billion.When is it coming?After years of discussions, lawmakers across the European Parliament, EU member states and the European Commission have begun negotiations on the final legislation for the digital euro, and aim to reach an agreement within the next six months.Cipollone said in an interview on July 13:“We hope the text will be finalized by the end of the year, at which point we’ll be in a position to take a decision on the future issuance of the digital euro.”The road to a digital euro. Source: CointelegraphIf that legislation goes through, the next move will be up to the ECB’s Governing Council, which will decide whether to launch the digital euro sometime in 2027. Europeans are unlikely to encounter it in their everyday lives before 2029, if it is approved at all.Has this been tried before?More than 100 countries started exploring CBDCs a few years ago, with most abandoning the idea or shifting to a wholesale model, rather than a retail currency. The few CBDCs in production have not been widely adopted.China began piloting its digital yuan, or e-CNY, in 2019, later rolling it out across the country. Even though it has processed trillions of yuan in transactions, most Chinese consumers still prefer using familiar payment apps such as Alipay and WeChat Pay.The Bahamas Sand Dollar project. Source: IMFThe Bahamas became the first country to roll out a nationwide retail CBDC when it launched the Sand Dollar in 2020. While the project was intended to improve financial inclusion, adoption was slower than many hoped, prompting authorities to push for wider distribution through commercial banks.Elsewhere, Nigeria’s eNaira also struggled to gain traction after its 2021 launch despite strong government support, and Brazil’s central bank shut down its Drex CBDC platform in 2025, citing cost and privacy concerns.As the Bank for International Settlements concluded in 2023, “a retail CBDC is a complex undertaking, and not only for the central banks.”Magazine: The British Virgin Islands are a top crypto hub no one ever talks about. Here’s whyCointelegraph publishes long-form journalism, analysis and narrative reporting produced by Cointelegraph’s in-house editorial team with subject-matter expertise. All articles are edited and reviewed by Cointelegraph editors in line with our editorial standards. Content published in here does not constitute financial, legal or investment advice. 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