Circle and Coinbase Form Joint Venture

Coinbase is teaming up with Circle to form the CENTRE Consortium.

Two cryptocurrency giants just recently announced they would be working together to establish standards for stablecoins and boost their adoption. Circle and Coinbase will be establishing the “CENTRE Consortium” which will be responsible for making sure stable-coins reach the hands of actual consumers and investors.

Circle and Coinbase are two of the largest cryptocurrency companies in the space. Coinbase was recently valued at some $8 billion following a hedge fund investment. Circle, likewise, has had a slew of investors supporting their project as they purchase traditional crowdfunding platforms and push towards cryptocurrency’s adoption; they are currently valued at $3 billion.

As per Coinbase’s announcement, the company outlined the broad range of possibilities rendered more accessible through the use of stablecoins. USDC, for example, will be able to be used as a “programmable dollar” — as such, it can be used with dApps, to send and receive USD, and allow for consumers to easily track their fiat on-chain. Coinbase is also keen on establishing consumer confidence and the announcement makes effort to emphasize that “compliance” behind the USDC and how it’s secure.

As per their announcement, the joint venture centers around the stablecoin known as “USD coin” or USDC, which is pegged 1:1 to the U.S. dollar. Created by Circle, the stablecoin currency will be available to buy and sell on Coinbase’s own trading platform.

“A More Open Financial System”

Since Bitcoin’s price has fluctuated so wildly this year and last, many companies have been coming out with their own stablecoins as a way to peg the cryptocurrency space to the dollar. The idea is that a stablecoin would allow for an on-chain representation of fiat, which could serve as a counterweight on the market. Even better, on-chain representation of the fiat would mean that the cryptocurrency would acquire much-needed legitimacy.

In their blogpost, Coinbase commented as saying:

“We see USDC as a major step towards a more open financial system. The advantage of a blockchain-based digital dollar – like USDC – is that it is easier to program, send, use in apps, and store locally than traditional US dollars”

This is good news given that the largest stablecoin, Tether, has come under some scrutiny in recent weeks for being dubious in where their money is stored. Recently, due to a market panic, the price of USDT plunged to below 90 cents despite being said to be backed “1:1 with the U.S. dollar.” The panic occurred over reports that their partner, Bitfinex, was insolvent and would close soon. Critics have been skeptical of USDT’s claims and still are, arguing that USDT does not hold some $2 billion in actual dollars backing its over $2 billion market capitalization.

USDT has been around for a long time — but it seems now that new stablecoins are finally entering the market which will provide some necessary competition to Tether. For example, Gemini dollar recently was announced and is now trading on Gemini exchange and a few other places. USDC is thus an addition to a long list of stablecoins that have been released this year, prompting some commentators to wonder if this hype over stablecoins is even over yet.

What Comes Next?

It seems that now we have a few legitimate contenders in the stablecoin space, enough where we can begin building an ecosystem around them. However, it is also possible that many of these backed cryptocurrencies co-exist with one another.

However, this was not the message that Circle and Coinbase are pushing for. Instead, they are looking for their USDC coin to become the standardized, accepted, fiat representation on-chain. Although other stablecoins will be present in the market, USDC is looking to lead the pack.

With the amount of funding Circle and Coinbase has, this seems possible. However, we have yet to see stablecoins backed by the FDIC like regular assets in a bank. There is always the concern of security when it comes to stablecoins. Just consider: if your assets are insured in a bank for up to $250,000 by law, then why would you opt to hold your fiat on-chain where there are no such protections?

These are the kind of questions stablecoins like USDC will be forced to ask themselves if they ever want to enter mass circulation with consumers. The look, feel, and basic functionality of a dollar must be realized on-chain, so that it is familiar enough for everyday consumers, not just the cryptocurrency space. Only then will stablecoins reach consumer adoption. However, all being said, USDC is a good start.