In a bombshell announcement, Circle revealed USD Coin, a fiat backed stable coin that will be used on their Poloniex exchange.
The move comes as Circle continues to pivot its business models. In recent months they have launched Circle Invest, purchased Poloniex, and redesigned Circle Pay. Now they are launching not only USD Coin, but have announced Centre, what they hope will become a group of companies designed to facilitate the creation of other fiat backed stable coins. Bitmain joined them on stage to announce that they are a part of that group. The group’s main purpose will be to impose a set of standards that ensure transparency, stability and ensure the coins are truly backed by their fiat counterpart.
According to Circle, there will be three primary use cases of USD Coin and any other fiat coins that come out of Centre. The first will be to act as an easily accessible hedge for crypto traders. This isn’t unheard of. Uphold has been offering ways for users to hold their crypto in a variety of different currencies and commodities. But those aren’t actual coins you can take out of their system. USD Coin will be ERC20 compatible, meaning it should be easily added to most exchanges and in theory should work with any ERC20 compatible wallet.
The second use case is as a trading pair. Most exchanges use Bitcoin as their main trading pair, allowing users to trade other coins against Bitcoin’s value. But with the USD Coin, users should be able to trade any coin against the value of the US dollar.
The last use case is a bit more interesting. As an ERC20 compatible coin, USD Coin can be used in Ethereum Smart Contracts. So rather than denominating them in a volatile coin like Ether, their costs can be controlled using the fiat backed stable coin.
This potentially has massive implications for DApps. Decentralized exchanges will be much easier to use with a stable fiat coin. Imagine a future with an autotomized uber utilizing self-driving cars. Would either the consumer or the company want payment to be in Ether? Prices would have to fluctuate constantly. USD Coin could give such a system stability. And, since it is a global platform, it could be used in nations all across the world. The same company might use JPY Coin in Japan but exchanging the two would be trivial for travelers from the United States.
In what would have been a big deal on a normal day but was tucked into the end of the speech today, Bitmain and Circle have announced a partnership. That partnership includes Bitmain leading a $110 million strategic investment round into Circle. According to CoinDesk, that puts the company’s evaluation at over $4 billion.
The minting and burning of USD Coin, as well as any future fiat backed coin will be done by Centre. The user will join Circle or another Centre approved partner, connect their bank account and deposit fiat. Then the corresponding USD Coins will be minted. When the user wants to cash back out, Circle or another Centre approved partner will deposit the fiat back into his or her account and the corresponding USD Coins will be burned.
Circle says Centre’s standards will be open source. Its governance model will allow any exchange, bank or financial institution to join.
In a talk after their announcement with CoinDesk Live, they asked if Circle was concerned about scalability. They didn’t provide a solution but did say that was an issue Centre would be addressing, along with governance, standard and keeping the price stable.
USD Coin has not yet launched, but Circle expects it to launch in a few months. They asserted that Asia is the center of the cryptocurrency world and therefore, they think other stable coins will be a very important part of the project.
The reaction on Twitter was mixed. Many users seemed to see the use case of USD Coin over competitors such as Tether and other stable coins. Others, many of whom are already hostile to the Goldman Sachs backed Circle, decried what they saw as a centralized governance model.
You can read more on USD Coin and Centre on Circle’s FAQ and the Centre’s whitepaper.