In a move that has captured the attention of the cryptocurrency community, two esteemed and well-established entities in the crypto realm, Coinbase and Circle, have embarked on a collaborative journey. Coinbase has made a direct investment in Circle, a prominent issuance.
At the heart of this collaboration lies the USD coin (USDC), a stablecoin pegged to the U.S. dollar that Circle has championed. Notably, the governance of USDC has been overseen by the Centre Consortium, a cooperative endeavour to ensure the proper functioning and widespread acceptance of the stablecoin. However, the recent announcement has brought to light a slight shift.
The news of this strategic partnership was revealed when Circle announced that the Centre Consortium would be disbanded. The two companies performed all required tasks to maintain and promote USDC efficiently without the Centre. By directly investing in Circle, Coinbase demonstrates its confidence in Circle’s stablecoin initiatives and positions itself at the forefront of stablecoin innovation.
Stablecoins: Bridging Crypto Volatility with Reliability
Stablecoins are the cryptocurrencies pegged to provide volatility to other popular cryptocurrencies, such as Bitcoin (BTC). Usually, stablecoins use either a cryptocurrency or a fiat currency for collateralisation. They maintain the value of a currency while providing a reliable medium of exchange.
Stablecoins are the primary way for non-fiat crypto traders to carry out their trades, as they lack price volatility after most cryptocurrencies face volatility. You can also check some BTC alternatives here.
The first stablecoin, Tether (USDT), was founded in 2014. USDT is also the most traded cryptocurrency asset in the world. Stablecoins are programmable money that can interact with other digital assets, combining the properties of fiat currencies with added utility on the blockchain.
Circle: A Prominent Stablecoin Issuer
Jeremy Allaire and Sean Neville founded Circle, a Peer-to-Peer (P2P) payment technology firm that manages stablecoin. Circle partnered with Coinbase in 2018 to create USDC, the world’s second-largest stablecoin. It was designed to hold a stable price of $1 or near it. In 2023, USDC revealed that $3.3 billion of its reserves were placed at Silicon Valley Bank when it collapsed.
It has now been transferred to the Bank of New York Mellon (BNY Mellon). Also, Jeremy has recently started demanding the U.S. Congress issue clear rules for stablecoins. Circle has established itself as a prominent issuer of stablecoins within the crypto world. It has bridged the gap between traditional finance and the digital one.
Integration of Circle’s Stablecoins Into Coinbase’s Platform
Recently, Coinbase has stepped towards developing an active strategy by getting a stake in Circle. Both these companies are dissolving the Centre Consortium partnership that issued USDC. According to CoinGecko, in the last few years, the market capitalisation of Circle’s USDC increased from $500 million to $26 billion.
As part of this move, Circle plans to internalise the governance of USDC. It will include the native support of six more blockchains. In the interview with CoinDesk, the two companies didn’t give a hint about those six additional blockchains. Also, the size of the stake Coinbase got has been confidential until now.
Possible Effects on Other Crypto Exchanges and Stablecoin Issuers
Benefitting from Coinbase’s support, Circle can elevate its involvement to enhance the functionalities of USDC, the stablecoin that has gained substantial attention. This action can potentially establish a model for other stablecoin creators, prompting them to heighten their emphasis on technological advancement, adherence to regulations, and enhancing user experiences.
As Circle pushes forward to redefine the possibilities of USDC, it might prompt other stablecoin initiatives to mirror these advancements to ensure their relevance in the ever-changing market terrain. It can also trigger a wave of competition among stablecoin issuers and exchanges, resulting in improved stablecoin offerings and enhanced user experience.
The Role of Stablecoins in the Future of Finance
Over the past years, U.S. dollar-pegged stablecoins, boasting a collective market capitalisation of $155 billion, have witnessed a surge in popularity. This upward trajectory appears to be ongoing, as recent market events have not exhibited any adverse trends. Most stablecoins tied to fiat currencies have effectively maintained their peg, reinforcing confidence in their stability.
Stablecoins present a swifter alternative to conventional payment processing, exerting a positive influence on the crypto exchange, as mentioned in https://player.me/lcx-crypto-unravelling-the-future-of-cryptocurrency-exchanges/. Additionally, the broader impact of digital wallets could be substantial, as the accessibility of holding, sending, and spending fiat currency becomes feasible for anyone possessing a smartphone and internet connectivity.
Coinbase and Circle are set to persist in generating revenue from the interest earned on USDC reserves. As part of their updated agreement, this revenue-sharing model will remain tied to the quantity of USDC held on their platforms. Furthermore, an equal distribution of interest will stem from the wider adoption and utilisation of USDC across the ecosystem.
The partnership between Coinbase and Circle stands as a testament to innovation, collaboration, and the potential to reshape the financial world. As this journey unfolds, its impact on stablecoin adoption, crypto exchange practices, and financial inclusion could resonate far beyond the partnership. Not just that, there are another interesting topic about ethereum.
Frequently Asked Questions
Why Did Coinbase Invest in Circle?
Coinbase’s investment in Circle may prove to be an opportunity for Coinbase to diversify its product offerings. Also, the investment can allow Coinbase to tap into the growing Decentralised Finance (DeFi) ecosystem. Collaborating with the stablecoin issuer can open doors to many strategic partnerships, joint initiatives and promotion opportunities.
Will Circle’s Stablecoins Be Exclusive to Coinbase?
No, Circle’s stablecoins, such as USDC, are not exclusive to Coinbase. These stablecoins are typically designed to be interoperable and accessible across various cryptocurrency exchanges, wallets, platforms, and applications within the broader crypto ecosystem.
What Challenges Might Arise Due to This Partnership?
The collaboration might draw increased regulatory attention due to the significant influence that both Coinbase and Circle possess in the cryptocurrency space. Regulators could scrutinise the partnership’s impact on stablecoin issuance, governance, and potential systemic risks.
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