On Monday, Coinbase and Circle, the two companies behind USD Coin, agreed to new terms that will change USDC’s governance and funding, including Coinbase’s first equity stake in Circle and the closing of the Center Consortium by the two companies. Previously governed stablecoins.
The updated protocol reflects USDC’s changing economics and popularity, particularly as it faces an uncertain global regulatory environment and competition from other stablecoins, including offshore rival Tether and the newly launched PayPal stablecoin . As part of the plan, Circle plans to launch USDC on six new chains in the coming months to help increase adoption, though the company declined to provide specifics.
Launched in 2018, USDC is pegged to the U.S. dollar, meaning its price is fixed at $1 through corresponding reserves held in U.S. dollar-equivalent assets.Although the project idea was originally conceptual Circle decided to create a separate consortium called Center to manage the token, with Coinbase joining as a distribution partner, help start USDC in October 2018.
With the popularity of decentralized financial applications, USDC’s market capitalization has grown exponentially, from $500 million at the end of 2019 to nearly $56 billion by July 2022. The corresponding rise in interest rates has resulted in cash windfalls for Coinbase and Circle, both of which have gained on assets backing USDC, including U.S. Treasury bills. Interest income has become the main lifeline for both companies during the bear market, with Coinbase’s interest income rising from $32.5 million in the second quarter of 2022 to $201.4 million in the second quarter of 2023.
Previously, Coinbase and Circle operated under revenue-sharing agreements outlined in the companies’ financial disclosure forms, with allocations based on the amount of USDC allocated (or minted) by each company and the amount of USDC held by each company. platform. Under the new agreement, income will still be distributed based on the amount of USDC held on each platform, though interest income will now be shared equally with any off-platform USDC (such as USDC in DeFi wallets), thus shifting the focus from which company minted the original .
during an interview wealthCircle chief executive Jeremy Allaire said the new arrangement would help “adjust the economy in a way that is very fair to both of us”.
Equity creates “good, strong alliances for long-term success,” he added.
Both Allaire and Jim Migdal, Coinbase’s vice president of consumer business development, declined to provide specific figures for the equity investment, although Allaire described it as a “small minority.”
The closure of the center also represents a major change for USDC. In the original white paper outlining the center, the organization was seen not just as a stablecoin distributor, but as a more noble steward, working to build a global, consumer-centric, interoperable payments network in which Includes various fiat-backed tokens. Center has only launched USDC so far, while Circle also issues a euro-backed stablecoin accessible on both blockchains.Instead, USDC’s recent moves have targeted the cryptocurrency developer community, such as Circle’s Programmable wallet and Transferring across blockchainsreflecting the dominance of DeFi.
While Center describes itself as a consortium, it only includes Coinbase and Circle, as collaborations with other companies never materialized. The organization used to have more than 20 employees, but in recent months the number of employees has dwindled to single digits. Under the new arrangement, governance of USDC will be handed over to Circle.
Allaire said that as governments around the world begin to adopt stablecoin legislation, there is no longer a need for independent entities like the Center, which he refers to as self-regulatory organizations, to govern. While two key House committees passed a stablecoin bill in late July, the effort stalled amid pressure from the White House.
Currently, the challenges facing Coinbase and Circle will spur USDC growth. In March, Circle revealed that $3.3 billion in reserves backing USDC was trapped in bankrupt Silicon Valley banks. The stablecoin briefly lost its $1 peg in the secondary market. While USDC was revived after the federal government guaranteed Circle’s deposits, USDC’s market share has since fallen precipitously, with much of the stablecoin market shifting to Tether. USDC’s market cap is currently close to $26 billion and Tether’s is close to $83 billion.
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