Fintech startup Circle has captured $110 million in venture capital during the largest venture capital round raised by a cryptocurrency or blockchain company to date. Led by China-based mining juggernaut Bitmain, the funding round will be used to launch a new regulatory-complaint cryptocurrency pegged to the US dollar.
In a press release published on Tuesday 15th May, Circle announced the “pending availability of tokenized US dollar coins,” which will be supported by the CENTRE open source framework. Developed on the back of a $110M strategic investment in Circle, new Circle USDC token will be backed by reserves of US dollars and will focus heavily on regulatory compliance.
Circle founders @psneville and @jerallaire took the stage at #Consensus2018 earlier today to announce Circle USDC, a price-stable tokenized US dollar coin. Learn more about it here: https://t.co/8fZN6vDryb
— Circle (@circlepay) May 15, 2018
According to Circle, the new token will be created in response to the need for a price-stable medium of exchange and store of value as trading volatile cryptocurrencies cause unwanted complexity, which leads to the creation of fragile settlement contracts.
Circle appears to be developing the new USDC token in order to address the issues that are presented by existing USD-pegged tokens created by platforms such as Tether. Existing fiat-backed approaches, according to Circle, “have operated in unregulated jurisdictions with unknown banking and audit partners, and have been built as closed-loop ecosystems and closed proprietary technologies.”
The First Fully-Compliant USD-Pegged Stablecoin
The new Circle USDC will focus on operating within the US money transmission laws and establishing a clear auditing process. Interestingly, USDC will be issued as an ERC20 token on the Ethereum network:
“Circle USDC addresses these problems by providing detailed financial and operational transparency, operating within the regulated framework of US money transmission laws, and reinforced by established banking partners and auditors.”
In a media event reported by Reuters, Circle CEO Jeremy Allaire highlighted the difficulties associated with transacting in volatile cryptocurrencies, stating:
“It is difficult to use something like Bitcoin if the volatility is so high. It (USDC) unlocks an incredible amount of power for the dollar — It’s basically a dollar that operates on blockchain. When I look at the convergence of traditional finance and the crypto space, it’s begging for that. There are a number of banks who are excited about it and will support it.”
According to Allaine, once fiat USD is transferred to their USDC ERC-20 equivalent on the Ethereum blockchain they can be moved “within seconds.” Allaine stated that Circle plans to eventually add both Euro and GBP tokens, but will likely focus on developing pegged Asian currencies as there is a lack of competition in the current cryptocurrency market.
Bitmain Joins Forces With Circle
The USDC token will be redeemed based on network rules defined by CENTRE, an Ethereum payments network developed by Circle that captured $20 Million in SAFT Sale in December 2017. Mining giant Bitmain will be leading a $110 million investment in Circle alongside other investors that include IDG Capital, Breyer Capital, General Catalyst, Accel, Digital Currency Group, and Pantera.
In addition to investing in the funding round, Bitmain will also assist Circle in developing and launching other stablecoins linked to fiat currencies.
The Future of Pegged Stablecoins
The presence of a fully-audited, regulatory compliant stablecoin pegged to the USD may present a serious threat to Tether’s USDT, which has come under fire recently after receiving a subpoena from the Commodity Futures Trading Commission. The subpoena prompted the platform to engage financial services firm Friedmann LLP to conduct an audit, which never occurred — the accounting firm and Tether cut ties in January, leaving the issue of Tether’s reserve capacity unaddressed.
Goldman Sachs-backed Circle, however, may provide the cryptocurrency market with a transparent alternative to USDT. With Tether left in a state of uncertainty subsequent to ongoing auditing issues, it’s possible that USDC’s streamlined availability through the Circle app-based peer-to-peer payment network could see it supplant USDT as leading stablecoin in the market.
Cover Photo by Daniel Frank on Unsplash