One of the things that is stopping the adoption of cryptocurrencies today is volatility. Though you may argue that Bitcoin is becoming less volatile these days, it is too early to tell if this is the new standard. In fact, last year, from $1,000, it was able to shoot up to near $20,000 by mid-December. This is also true for other cryptocurrencies.
For this reason, the idea of stablecoin is born. Tether is a stable coin that is backed by US dollar. It has been in the center of controversy as experts claim that it played a role in manipulating Bitcoin’s price.
Coinbase and Circle
Recently, Coinbase along with Circle rolled out a new joint venture called “CENTRE Consortium”. The idea behind it is that they want to speed up the adoption of crypto by having it backed by actual currencies such as US dollar. According to Circle co-founders Jeremy Allaire and Sean Neville, “Coinbase and Circle share a common vision of an open global financial system built on crypto rails and blockchain infrastructure, and realizing this vision requires industry leaders to collaborate to build interoperable protocols and standards”.
Circle launched its own stablecoin in May. The company today is valued at $3 billion after funding. It has made different deals and even long-term bets despite the sluggish Bitcoin price today. The USD Coin is simply one of those. And also, this stable coin is available for trading on Coinbase’s crypto exchange. This is the first time that Coinbase supported a stablecoin.
1:1 Representation
The concept behind the stablecoin is that it is backed by the US dollar. It has a 1:1 representation and is built on the Ethereum blockchain. According to the Coinbase blog post, “We see USDC as a major step towards a more open financial system. The advantage of a blockchain-based digital dollar-like USDC- is that it is easier to program, send, use in apps, and store locally than traditional US dollars”.
Is it really stable? This is the question that is being asked in the crypto market today. Earlier in October, Tether experienced such. It went below 90 cents momentarily after there were reports that Hong Kong-based cryptocurrency exchange was insolvent. And also, there those critics asking whether or not Tether is actually backed by enough US dollars.
Why Stablecoins?
Circle CEO Jeremy Allaire believes that people will not be trading in Bitcoin but rather government-backed money. He sees blockchain technology as a means that can make this process easier. He believes that with Circle’s stablecoin, it is not meant exactly to replace the US dollar. However, it was designed to make the US dollar compatible in the blockchain. He said that “If people can exchange value over the internet without a toll extracted for payments it’s pretty dramatic”. He added that “It’ll make the web look like a cute experiment comparatively speaking in 10 to 15 years”.
Is the stablecoin a good thing? Does it defeat the purpose of cryptocurrencies by being decentralized? And also, will regulators improve rules and regulations regarding cryptocurrencies in the future that a stable coin won’t be neeed?
