On September 26th, Circle announced the release its new stablecoin USD Coin (USDC), which will begin trading on Circle’s Poloniex exchange immediately. The new USDC stablecoin will be fully collateralized by USD at a 1:1 ratio. The stablecoin market has been particularly active recently, with several other projects launching in past few months.
Circle’s announcement also highlights that the firm has over thirty supporting companies lined up to begin offering trading and support for the new stablecoin.
Exchanges that have agreed to begin trading in the new stablecoin. In addition to Poloniex, other exchanges include OKCoin, KuCoin, Digifinex, Coinplug, XDAEX, and CoinEx. Additionally, numerous prominent wallet providers have pledged to begin supporting USDC shortly.
Circle’s stablecoin project began approximately four months ago when Circle announced that it had raised a $110 million funding round, partially to fund the development and launch of its new stablecoin.
Circle is notably backed by Goldman Sachs, and its successful funding round is said to have been led by Bitmain Technologies, the Chinese mining giant.
Goldman’s backing and the massive fundraising round have lent considerable gravitas to the project. Circle acquired Poloniex earlier this year, for approximately $400 million.
Convertibility and Ease of Use
Traders can convert USD to USDC easily using Circle’s conversion platform. Funds are held with Circle’s banking partners. The USDC coins follow the ERC-20 standard, and while there will be no fee for tokenizing USD, there will be a .1% fee charged when USDC is converted back to fiat. By building USDC using the ERC-20 standard, Circle has made it relatively straightforward for exchanges and wallet providers to add support for the new coin.
To ensure that USDC retains its 1:1 peg, Circle led the creation of CENTRE, a consortium with numerous other market participants designed to monitor and regulate USDC issuance. Issuers of USDC must comply with the consortium’s rules, including sending audited bank statements proving issuers have enough USD on deposit to maintain the 1:1 peg.
The Increasingly Crowded Stablecoin Field
There has been a tremendous amount of activity in the stablecoin market over the past few months. The launch of Circle’s new stablecoin follows the news of the approval for launch of both Gemini and Paxo’s stablecoins by the New York Department of Financial Services (NYDFS). Two start-ups, Havven and Carbon, have also recently launched their own stablecoins.
Stablecoins have emerged as a key part of the crypto market’s infrastructure, allowing traders to easily move in and out of positions without triggering capital gains tax. Stablecoins also provide utility by giving traders and exchanges an easy medium of exchange that avoids interacting with the traditional financial system.
The dominant stablecoin to date has been Tether (USDT), which has dogged by persistent concerns about the validity of its 1:1 peg. Tether is regarded by some as a systemic risk to the growing crypto markets, with widespread concerns about the impact regulatory action against Tether could have on the broader market.
Concerns over whether Tether truly holds $1 USD on deposit for each USDT has issued were sparked by its decision in early 2018 to sever its relationship with its auditor in early 2018, always a red flag for suspected corporate misgovernance. According to Coinmarketcap, over 2.8 Billion of USDT had been issued as of September 26th.
In an attempt to allay market concerns about Tether’s solvency, Tether released a report by Washington D.C. law firm Freeh, Sporkin & Sullivan LLP attesting to the firm’s solvency, but the report ultimately raised more questions than answers.
The market will be keeping a close eye on how quickly USDC is adopted. The question of which stablecoin will ultimately end up dominant is far from settled, and the stablecoin space promises to remain interesting for the foreseeable future.