Circle Announces USD Coin
As cryptocurrencies became more ubiquitous in 2017, there were more opportunities to buy and hold or trade the many digital assets that were cropping up. There are several online cryptocurrency exchanges that made this possible. In order to make it easy for fiat currencies to be traded for these cryptocurrencies, “stablecoins” that are tied to fiat currencies were created to be used on various exchanges. USD Tether is an example of such a cryptocurrency. Goldman Sachs owned Circle announced a couple of days ago that it was creating its own price-stable cryptocurrency known as USD Coin.
Why Create A Stable Coin?
An obvious reason for having a stable coin is to create a digital asset that is protected from the volatility that the cryptocurrency space is known for. For speculators, the volatility is welcomed since it creates opportunities to make gains. There are, however, situations in which cryptocurrency holders would prefer to stay away from the risks that come with the volatility. For instance, an individual who gets paid in crypto for a product or service rendered might want to convert the cryptocurrency into a price-stable one to avoid losing value should prices go down.
Fiat-pegged cryptocurrencies also have another important use. They serve as a bridge between the fiat and cryptocurrency world. As mentioned earlier, there is no shortage of cryptocurrency exchanges and coins to trade. It is however not so easy to move in and out of crypto on these exchanges using traditional currencies. There is the problem of finding financial institutions that are willing to perform such transactions for cryptocurrency exchanges. Most banks are known to not want to have any cryptocurrency dealings. A possible solution to this problem is the creation of stable cryptocurrencies.
A “stablecoin” can be created and backed by fiat currency kept in banks. The tokens can then be used to make trades on an exchange. They would be bought at the price of the traditional currency it is pegged to and sold for the same currency when redeemed. This makes entry into and exit from the cryptocurrency world using traditional currencies much easier. Examples of “stablecoins” being used for this purpose are Tether, BitUSD, TrueUSD, and Carbon.
How is USD Coin Different from Tether and Similar Stablecoins?
USD Tether is the most popular and largest stable cryptocurrency by market cap. There is about $2.5 billion worth of Tether in existence at the time of writing. Even though this cryptocurrency brings about more convenience when it comes to trading and moving US dollar between exchanges, it has come under heavy criticism a number of times. The creators of Tether have been accused of creating money out of thin air and practicing fractional reserve banking. There is still no proof that all the Tether in circulation is backed by real US dollars in bank accounts.
How does Circle plan to skirt all these difficulties with their USD Coin? The plan is to comply with all existing regulations in the U.S.A. Circle also stated in their announcement that they were going to go about the issuing of the USD coin in a transparent manner.
Taking these actions would help remove doubt and fear from traders who would be using the new cryptocurrency. Having proof that the tokens are backed by real dollars puts traders at ease when using the token. Knowing that regulators won’t come asking for the circulation of the token to stop also helps. With these steps, it appears there are no roadblocks ahead for Circle’s USD Coin.