Circle Gets A “Bailout” From Coinbase As Firm Takes “Minority Equity” In Stablecoin Operator
Coinbase and Circle, the firms driving USD Coin (USDC), solidified amendments on Monday, signifying a stride in USDC’s governance and financial structure. A pivotal aspect of the transformation entails Coinbase’s inaugural acquisition of equity in Circle and the collaborative decision to discontinue the Centre Consortium, previously responsible for overseeing the stablecoin.
This revised agreement stands as a reflection of the dynamic shifts in the economic landscape and the soaring popularity of USDC. The cryptocurrency faces the dual challenges of navigating an uncertain global regulatory climate and fierce competition from alternative stablecoins. These include the offshore contender Tether and the freshly introduced PayPal stablecoin.
Circle, in a proactive move, plans to roll out USDC on six novel blockchain networks in the forthcoming months, aimed at fostering broader adoption. While specifics remain undisclosed at this juncture, this strategic maneuver seeks to expand the coin’s influence.
Having emerged in 2018, USDC boasts a value pegged to the US dollar, achieved by maintaining equivalent reserves in dollar-denominated assets. Initially conceptualized by Circle, the project was brought to fruition through the establishment of the independent Centre Consortium, with the involvement of Coinbase as a distribution partner. This partnership saw the launch of USDC in October 2018.
The ascendance of decentralized finance applications led to a remarkable surge in USDC’s market capitalization. From a modest $500 million in late 2019, it skyrocketed to an impressive $56 billion by July 2022. This surge in value, accompanied by elevated interest rates, facilitated a lucrative windfall for both Coinbase and Circle. The yield garnered from assets backing USDC, including US Treasury bills, translated into substantial income. This proved especially invaluable during market downturns, with Coinbase witnessing its interest income surging from $32.5 million in Q2 2022 to a staggering $201.4 million in Q2 2023.
The previously established revenue-sharing model, grounded in USDC distribution and holdings, now takes a new form. Under the fresh arrangement, while revenue distribution remains proportional to platform-held USDC, the innovation lies in the equal sharing of off-platform USDC’s interest income. These modifications mitigate the emphasis on the originating entity and engender a more equitable distribution paradigm.
In an interview with Fortune, Circle CEO Jeremy Allaire elucidated that this transformation serves to optimize the financial dynamics for both entities. He highlighted the alignment of interests and the creation of a robust foundation for sustained success. Specifics concerning the equity investment remain undisclosed, although Allaire indicated it to be a “minority equity stake.”
The conclusion of Centre Consortium marks a significant watershed for USDC. Initially envisioned as a conduit for various fiat-backed tokens in a globally interoperable payments network, Centre solely executed the launch of USDC. Recent initiatives underscore a shift towards catering to the crypto developer community, as exemplified by Circle’s programmable wallets and cross-blockchain transfers. These endeavors are reflective of the ascendant DeFi landscape.
Allaire underscored the redundancy of a separate entity like Centre, asserting that with the proliferation of stablecoin legislation globally, external self-regulation becomes less essential. While legislative progress, exemplified by a stablecoin bill, hit roadblocks, the governance shift for USDC reflects an adaptive response to the evolving regulatory panorama.
The immediate endeavor for Coinbase and Circle entails stimulating USDC’s expansion. Earlier, Circle grappled with $3.3 billion of reserves trapped in a faltering Silicon Valley Bank, temporarily unsettling the stablecoin’s $1 peg on secondary markets. While recovery was secured with government intervention, the subsequent market shift favored Tether, causing USDC’s market cap to decline to around $26 billion, while Tether’s soared to approximately $83 billion.
Information for this story was found via the Fortune and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
