On Monday, August 21, Coinbase and Circle, the dynamic duo behind the USD Coin, reached an agreement set to alter the governance and financial structure of USDC.
Coinbase is now stepping into the equity game with Circle, marking its first-ever stake in the company. This shift also sees the dissolution of the Centre Consortium, the former governing body of the stablecoin.
The revamped agreement mirrors the evolving economic status and popularity of USDC, a currency that must grapple with an unpredictable global regulatory landscape.
USDC’s position is further complicated by other stablecoins competition like offshore rival Tether and the freshly unveiled PayPal.
CCN reached out to Circle for commentary but did not receive a reply at the time of publishing
To accelerate the adoption of digital currencies, Circle announced plans to introduce USDC on six new platforms in the upcoming months.
With its value fixed at $1 and backed by dollar-equivalent assets, USDC was initially conceived by Circle in 2018, which decided to establish an autonomous consortium named Centre to oversee the token.
Coinbase joined the initiative as a distribution partner, contributing significantly to the launch of USDC in October 2018 .
As the demand for decentralized finance (DeFi) applications surged, USDC’s market cap witnessed a massive leap from $500 million in late 2019 to an impressive $56 billion by July 2022.
Coinbase and Circle both received a monetary windfall as a result of the corresponding increases in interest rates since they were able to collect yields on the assets that supported USDC, such as U.S. Treasury notes.
During the bear market, interest income became a crucial source of income for both businesses, increasing YoY for Coinbase to $201.4 million in the second quarter of 2023 from $32.5 million.
In the past, Coinbase and Circle used to operate on a revenue-sharing model, as shown by their financial disclosure forms. The earnings were split depending on how much USDC was issued (or minted) by each company and on the amount of USDC held on each of their platforms.
However, with the newest agreement , the dynamics have changed as revenue will continue to be divided based on the amount of USDC held on each platform but the interest income in DeFi wallets will be equally shared, putting the spotlight on which company originally minted the USDC.
As Centre closes its doors, this pivot represents a monumental shift for USDC. Originally envisaged in Centre’s inaugural white paper as more than just a stablecoin distributor, this organization was painted as a grand steward of a consumer-focused, global, interoperable payments network, encompassing a range of fiat-backed tokens.
However, so far, Centre’s achievements have been confined to the launch of USDC and Circle’s issuance of a euro-backed stablecoin on two blockchains.
Instead, recent strides for USDC have been geared towards the crypto developer community, embodied in Circle’s introduction of programmable wallets and cross-blockchain transfers , underscoring the growing dominance of DeFi.
Despite describing itself as a consortium, Centre’s roster only included Coinbase and Circle, with potential collaborations with other firms remaining unrealized. Once boasting a team of over 20, the Centre’s staff numbers have recently dwindled to single digits.
In this new chapter, Circle will take the reins of USDC’s governance as its CEO, Jeremy Allaire, argued that the oversight of an autonomous entity like Centre is now redundant as global governments start to embrace stablecoin legislation.
Despite the passage of a stablecoin bill by two influential House of Representatives committees in late July, the initiative stalled under pressure from the White House. The challenge now for Coinbase and Circle is to stimulate USDC’s growth.
In a startling disclosure in March, Circle revealed that $3.3 billion of the reserves buttressing USDC were ensnared at the faltering Silicon Valley Bank, causing the stablecoin to momentarily lose its $1 peg on secondary markets.
This strategic move aligns with Coinbase’s broader ambitions of expanding its footprint in the burgeoning digital currency market. The acquisition is expected to promote mutual benefits, as it allows Coinbase to tap into Circle’s extensive capabilities and innovative solutions in the realm of digital payments and blockchain technology.
Coinbase told CCN that following this acquisition, both Coinbase and Circle are set to continue generating significant revenue from the interest income on the reserves of the US Dollar Coin (USDC). These companies form two of the leading stakeholders in the cryptocurrency market and the agreement is seen as a landmark in the industry.
“Under this new agreement, the revenue generated will be shared equitably, based on the amount of USDC held on each platform,” the Coinbase spokesperson stated.
This arrangement ensures a fair distribution of revenue, encouraging both parties to maximize their holdings of USDC. The agreement also extends to the wider distribution and usage of USDC. As part of the agreement, both Coinbase and Circle have agreed to share the interest income generated from these activities equally, thereby ensuring an equal sharing of interest income.
Despite a precarious start, Circle managed to bounce back after the federal government stepped in to guarantee its deposits. However, the market share of USDC has seen a significant dip , with Tether leading the charge in the stablecoin space.
As it stands, USDC’s market cap is roughly $26 billion, trailing behind Tether’s whopping $83 billion. But here’s where things get interesting.
Coinbase buying an equity stake in Circle doesn’t symbolize a hostile takeover or a race to snatch Circle’s customers but it’s a strategic move aimed at bolstering the overall standing of cryptocurrency in the US, amidst regulatory hurdles and the growing popularity of other stablecoins.
Either Coinbase or Circle are set to benefit from the rising popularity of USDC, regardless of the turbulent global regulatory climate. This acquisition could potentially be a game-changer for the US crypto industry.
It’s all about strengthening and unifying the crypto community in the face of adversity. We can’t wait to see how this partnership unfolds and reshapes the future of cryptocurrency in the US.