With USD Coin (USDC) the Circle vs. Coinbase saga continues…
And Circle seems to be out-innovating Coinbase, at least with its latest move… The launch of a fiat currency backed, “stable crypto” called USD Coin.
USD Coin is an asset backed token backed by the U.S. dollar.
Each USDC held by a Circle account holder will float in value to an actual U.S. dollar that will be held in the user’s account.
USD Coin as Stable Crypto
With USD Coin, Circle aims to leverage the positives of crypto, while minimizing the negatives keeping Bitcoin and others from being widely used in transactions.
The benefits of cryptocurrencies compared to fiat currencies include velocity, ease of transfer, potential for micro-payments, and relatively low transaction (frictional) costs.
The problems with cryptocurrencies include high volatility, complexity, intensive energy use and, ironically, trust.
With many new cryptocurrencies, you can’t tell if they’ll still be around in a week. With Bitcoin, it’s hard to use for transactions because you can’t tell what it will be worth 24 hours from now.
Where USD Coin offers a solution is as a “stable” asset backed token pegged to the U.S. dollar… The token will fluctuate only as much as the dollar does.
Asset backed tokens are cryptocurrencies that are backed by physical assets.
Asset backed tokens have residual, fractional value that is rooted in physical assets such as fiat currencies, real estate, art, money, or renewable energy assets. Even stocks themselves can be “tokenable”.
Just as a share of stock represents ownership in a company… An asset backed token may be thought of as similar to a stock in this sense.
The owner of an asset backed token, like the owner of a share of stock, owns a piece of a something tangible, and has rights as an owner (i.e. shareholder).
With USD Coin, each coin will be backed by an actual dollar.
Another Win For Ether
In another “win” for Ether as a currency, the USD Coin will be an ERC-20 token, based on the Ethereum network.
Using an ERC-20 token means that Ether (the currency that runs Ethereum) will need to be used to process transactions.
Ether is down today (see Coinbase chart above) but up >32% over the past month. Ethereum is down from its high in January when it hit around $1329.