On Monday, Coinbase and Circle, the two companies behind USD Coin (USDC), finalized new terms that redefine the governance and funding of USDC. Key changes include Coinbase acquiring an equity stake in Circle for the first time and the dissolution of the Centre Consortium, which previously governed the stablecoin.
This updated agreement highlights the evolving economics and adoption of USDC, particularly amid global regulatory uncertainty and competition from rivals like Tether and PayPal’s newly announced stablecoin. As part of the strategy, Circle plans to expand USDC’s reach by launching it on six additional blockchain networks in the coming months—though specific details remain undisclosed.
Background: The Rise of USDC
Launched in 2018, USDC is a dollar-pegged stablecoin backed by reserves held in U.S. dollar-equivalent assets. Initially conceptualized by Circle, the project was governed by the independent Centre Consortium, with Coinbase joining as a distribution partner.
USDC’s market capitalization surged from $500 million in late 2019 to nearly $56 billion by July 2022, fueled by the growth of decentralized finance (DeFi). Rising interest rates also generated significant revenue for Coinbase and Circle, as both firms earned yields on the assets backing USDC, including Treasury bills.
Key Changes Under the New Agreement
Revenue Sharing:
- Previously, revenue was split based on USDC minted or held by each platform.
- Now, interest income from off-platform USDC (e.g., DeFi wallets) will be shared equally, shifting focus away from origination.
Equity Stake:
- Coinbase’s minority equity stake in Circle aims to align long-term interests.
- Specific figures were not disclosed, but Circle CEO Jeremy Allaire described it as a "small, minority equity stake."
Governance Shift:
- The Centre Consortium, initially envisioned as a global payments steward, is now obsolete.
- USDC governance will transition entirely to Circle, reflecting streamlined operations and regulatory advancements.
Challenges Ahead
USDC faces headwinds, including:
- Market Share Decline: After $3.3 billion of USDC reserves were temporarily trapped at Silicon Valley Bank in March 2023, the stablecoin lost its peg briefly. Though it recovered, USDC’s market cap has since dropped to ~$26 billion, while Tether’s exceeds $83 billion.
- Regulatory Hurdles: Stablecoin legislation in the U.S. remains stalled, complicating long-term planning.
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FAQ Section
1. Why did Coinbase and Circle dissolve the Centre Consortium?
The Centre Consortium became redundant as stablecoin regulations evolved. Circle now oversees USDC governance directly.
2. How will the equity stake benefit USDC?
Coinbase’s investment strengthens alignment between the two firms, fostering long-term growth and stability for USDC.
3. What chains will USDC expand to next?
Circle plans to launch USDC on six new blockchains but has not yet disclosed specifics.
4. How does USDC’s revenue model work now?
Interest income from off-platform USDC (e.g., DeFi) is shared equally, regardless of which company minted the tokens.
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Conclusion
The Coinbase-Circle partnership marks a pivotal moment for USDC, emphasizing streamlined governance and equitable economics. However, regulatory clarity and market competition remain critical hurdles. As stablecoins continue to shape the crypto ecosystem, USDC’s ability to innovate and adapt will determine its future trajectory.
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