USDC: Cryptocurrency Backed by Fiat?

Two of the main problems of cryptocurrencies today are volatility and regulatory changes. For fintech giant Circle, they are planning to launch a new cryptocurrency that hopes to solve both problems. For starters, Circle is a payment startup that is owned by Goldman Sachs.

The digital currency is named USDC or USD Coin. It is an ERC20 built token that is built on the Ethereum blockchain. The company was able to raise $110 million for this new project via the crypto mining giant Bitmain.

But it isn’t just Bitmain that is part of the project. It also includes the like of IDG Capital, Accel Partners, Digital Currency Group, Pantera Capital, Blockchain Capital, General Catalyst, Breyer Capital, and Tusk Ventures. And considering the players involved, it only means that it has funding.

Fiat Backed Crypto

The USDC is developed based on open-source fiat Stablecoin framework that has been developed by its affiliate, CENTRE. Circle is currently the only member of CENTRE, but there are plans of getting more companies to become part of the group soon.

Among groups that CENTRE network wants to join include traditional banks and other government certified financial institutions. USDC is pegged as the cryptocurrency that can resolve volatility and regulatory concerns of investors.

According to Circle, USDC will be useful for traders to hedge out of trading positions converting their assets to USDC. And if all things work according to plan, this will attract many investors. The currency will be available on Poloniex which the company was able to acquire early in February.

Is It Really New?

But is it really something new? Tether, the 15th largest cryptocurrency by market capitalization is another cryptocurrency that is backed by the dollar. However, Circle mentioned that USDC is different from Tether mainly because they plan to ensure the regulatory compliance of their cryptocurrency.

But critics are still wondering why choose Ethereum’s blockchain instead of making one from scratch? Though Ethereum is growing in popularity among crypto investors and ICOs because of how simple things could get, there are still some issues that Circle should be aware of. There are the scalability issues that Ethereum continues to suffer from.

Also, how will investors know that the USDC tokens that they issue are really backed by liquid financial assets? If you will look at Tether’s case last November, the cryptocurrency issued 50 million coins in just less than a week with no proof that it is backed in the USD reserve. And for this, it has raised concerns regarding the actual value of the digital currency. Will USDC have a higher level of transparency in order to avoid this kind of problem?

Asset-Backed Cryptos

One of the biggest criticisms regarding cryptocurrencies is that it isn’t backed by anything. Venezuela and Russia already came up with their own cryptocurrencies backed with their own assets.

Is this a good or a bad concept? Considering the size of the Circle as a company, it may have some potential to get bigger. With a vision to run fiat currencies on blockchain plus their funding that is approaching $3 billion according to its chairman and CEO Jeremy Allaire, USDC could seriously have a use in our daily transactions.