The leading fintech company, Circle has made a bombshell announcement. They are releasing USD Coin – a fiat backed stable coin for their Poloniex exchange. This is one of the recent moves by the firm to pivot business model and enhance the portfolio.
In recent months, it has launched Circle Invest, redesigned Circle Pay, and purchased Poloniex. Now, they are not only launching their own cryptocurrency (USD Coin) but are also going to establish “Centre” – a group of companies designed to facilitate the creation of other fiat-backed stable coins. The fundamental purpose of the group will be to define and set standards for fiat-backed stable coins to ensure transparency, and stability.
Bitmain has announced to join them and become the first member of the group. This partnership between the two also includes Bitmain leading a $110 million strategic investment round into Circle, which puts the company’s evaluation at over $4 billion.
What is a Stable Coin?
Recently, we have seen a steady rise of stable coins – but a number of folks aren’t familiar with them. Stable Coins are the type of cryptocurrencies meant to hold a stable value. The most common argument in their favor is that – they are a hedge against volatility. One of the reasons merchants shy away from accepting cryptocurrencies (like bitcoin) is the price volatility coupled with transaction fees. Hypothetically, a stable coin can be part of the solution to protect trader and investor from the short-term price fluctuation.
The Use Cases for Circle
According to Circle, there are three primary use cases of USD Coin – may also be applicable to other fiat coins that come out of the group (Centre) they created.
- To act as an easily accessible hedge for crypto traders. While this is not something new, it offers a solution to the users to hold their crypto in a variety of different currencies and commodities. However, they aren’t going to be actual coins that you could take out of their system. USD Coin will be ERC20 compatible – making it easy for investors to add to the most exchanges and ERC20 compatible wallets.
- To work as a trading pair. Majority of the crypto 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 but the most interesting use case is its applicability in Ethereum Smart Contracts. As an ERC20 compatible coin, USD Coin can be used in Smart Contracts. Hence, 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 decentralized apps and exchanges – as it’ll be much easier to use them with a stable coin.
Imagine future vendors (say Uber) accepting the payment in Ether, but price fluctuations making it hard for the vendor/payer to accept it. A stable, fiat-backed currency (like USD Coin) could be a solution ther. USD Coin has not yet launched, but Circle expects it to launch in a few months.