Goldman-funded FinTech startup Circle Internet Financial (better known as “Circle”) announced on Wednesday (26 September 2018) that it is launching its “USD Coin” (USDC for short), which is a regulated fully collateralized dollar-backed cryptocurrency that was originally announced on 16 May 2018. This new “stablecoin” is based on an open source fiat stablecoin framework developed and governed by the CENTRE project.
Traditional crypto assets, such as Bitcoin (BTC) and Litecoin (LTC), are not very good as a form of payment because transacting in currencies with such extreme price volatility “creates complexity and fragile settlement contracts.” A price-stable cryptocurrency, such as a USD-pegged token, is essential if we want to achieve mainsteam adoption of cryptocurrency for payments, as well as for supporting maturation in financial contracts created on smart contract platforms. There are several possible approaches to creating a price-stable cryptocurrency. Two examples you may already know about are Tether (USDT) and Basis.
Circle says that the problems with existing fiat-backed solutions (such as Tether) are that they “have lacked financial and operational transparency, have operated in unregulated jurisdictions with unknown banking and audit partners, and have been built as closed-loop ecosystems and closed proprietary technologies.”
In contrast, Circle’s USDC stablecoin deals with these issues by “providing detailed financial and operational transparency” and “operating within the regulated framework of US money transmission laws, reinforced by established banking partners and auditors.” USDC tokens will be ERC-20 compatible (meaning that they run on the Ethereum blockchain); the will minted, issued, and burnt/redeemed based on network rules defined by CENTRE. Circle will only be the first issuing member of the CENTRE network, and further tokenized fiat stablecoins may be issued by other audited, licensed, participating network members.
Circle says that USDC is ideal for “crypto asset traders who are looking for a price-stable token to hedge in and out of trading positions and who desire high-speed and secure movement of fiat value across exchanges, and in and out of fiat banking.
Individuals and institutions that wish to “tokenize fiat currency into USDC ” or “redeem USDC into fiat currency” need to use Circle’s “USDC issuance service” (“https://usdc.circle.com/start”). You need to either use your existing Circle account (if you have one) to login or to sign up for a new account. This is necessary so that Circle can comply with KYC requirements. Supported countries are Andorra, Australia, Austria, Belgium, Bulgaria, Canada, Estonia, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Lithuania, Luxembourg, Mexico, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Singapore, Slovakia, Slovenia, South Africa, South Korea, Republic of, Spain, Sweden, Switzerland, Thailand, Turkey, United Kingdom, United States (excluding HI, NY, MN), Holy See (Vatican City State), Vietnam.
Here is what you need to set up a new account:
- create an account by providing your name, email address, and desired password
- agree to terms of service
- verify your phone number and email address
- provide proof of ID (such as passport)
- link a USD bank account
Here is how Circle describes the tokenization and redemption processes for USDC:
Tokenization is the process by which a real-world asset, such as USD, is made available as a crypto-native token. There are three steps to tokenizing USD into USDC:
A user sends USD to an issuers bank account
The issuer sends a request to the USDC smart contract to mint an equivalent amount of USDC
The issuer makes the newly-minted USDC available to the user, while holding the USD they were sent in reserve
When you redeem USDC, you essentially initiate the reverse process, exchanging a crypto-native token for the real-world asset it represents. In the case of redeeming USDC for USD:
A user with USDC requests a redemption from a USDC issuer
The issuer takes the user’s USDC and sends a request to the USDC smart contract to take that USDC out of circulation
The issuer sends USD from its reserves to the user’s bank account (net of any fees)
Once you have an account, the USDC service lets you perform four actions:
- tokenize USD (send USD to Circle’s bank account to get an equivalent number of USDC tokens)
- redeem USDC (the redemption request triggers the USDC smart contract such that you will receive the equivalent USD in your verified USD bank account)
- transfer USDC out (send your USDC to any Ethereum address)
- transfer USDC in (send USDC from an external Ethereum address to your Circle account)
USDC is immediately supported by Circle’s Poloniex crypto exchange and its Circle Trade OTC desk; it is also receiving support from many crypto industry partners (wallets, exchanges, and applications) that are also announcing or launching support for USDC today. It is not difficult to support USDC since it is implemented as an ERC-20 token.
On Poloniex, USDC deposits and withdrawals are currently live; trading in BTC/USDC, ETH/USDC, and USDT/USDC pairs will be enabled by September 27th, 2018 (10:00 ET).
USDC will soon by supported on many decentralized exchanges such as IDEX, Paradex, Radar Relay and Tokenlon. Ron Bernstein, Paradex’s General Manager, had this to say:
Stablecoins, especially ones that provide fiat rails, are a critical piece of infrastructure in the decentralized ecosystem. We're excited by Circle and CENTRE’s efforts to create a transparent, fiat-backed project that provides a bridge between traditional finance and the open financial system of the future.
Custodians and wallet providers, such as BitGo, Cobo, Coinbase Wallet, CoolWallet S, Elph, imToken, Ledger, Status, Trust are also providing native support for USDC. Sid Coelho-Prabhu, Coinbase Wallet’s Product Lead made the following comment about USDC:
Stablecoins will form a cornerstone of the decentralized web and help bring cryptocurrencies to millions of users, moving us another step closer to an open financial system. Starting today, Coinbase Wallet will support the storage of USD Coin (USDC), as well as the use of USDC in decentralized apps.
Examples of crypto exchanges where USDC will be listed in the near future DigiFinex, CoinEx, Poloniex, KuCoin, OKCoin, Coinplug, and XDAEX.
USDC is only the first of many fiat tokens that CENTRE project plans to deliver, and it is expected that other CENTRE members will join Circle in future in launching their own USDC issuance services.
Featured Image Courtesy of Circle