(First of a two-part interview)
Stablecoin is a cryptocurrency whose value is pegged one-to-one to a stable asset or fiat currency, like the US dollar, and is thus insulated against price fluctuations. A US dollar-pegged stablecoin is always worth US$1 and redeemable at US$1.
A stablecoin can be used to reduce the loss of value in fiat-cryptocurrency conversion during transactions. For someone to enter the cryptocurrency market, one normally has to convert a government-issued, or fiat, currency such as the US dollar to the cryptocurrency – bitcoin or ethereum in most cases – and convert it back to fiat currency when cashing out.
During the conversion, one is exposed to the risk of a loss in value because the value of a cryptocurrency often swings wildly.
Stablecoin can help cut down the foreign exchange costs associated with making cross-border blockchain payments, with users having the option to convert a cryptocurrency into stablecoin without having to cash out of the fiat money.
Stablecoin has been touted as an important step toward the greater acceptance of cryptocurrencies. Many cryptocurrency startups and exchanges have created stablecoin projects. Tether, also known as USDT, has been a mainstay for years. Price-stable coins such as TrustToken and Gemini Dollar have also been launched since early this year.
After completing a US$110 million funding round led by cryptocurrency mining equipment maker Bitmain, Boston-based blockchain payments startup Circle has launched its own stablecoin called USD Coin or USDC for short. As the name suggests, one USDC token is always worth exactly one dollar.
Jeremy Allaire, co-founder and chief executive of Circle, recently sat down with EJ Insight to share his thoughts on the cryptocurrency world. In the first part of the interview, Allaire explains how the stablecoin can stimulate mass adoption of cryptocurrency and asset tokenization.
EJ Insight: Please tells us about the concept behind Circle’s USD Coin or USDC. Why is it important and needed?
Allaire: Circle created the technology behind USDC based on our belief that money should work the same way that content, data, and communications work on the internet – instant, open, global and free to move around.
We created CENTRE, which is in the process of being spun out into an independent member-based consortium, to house the open source technology and develop an open standard that many companies could implement, with Circle being the first. Fundamentally, we believe that USDC can help provide a base layer for value exchange on the internet, with many other applications that can be built on top of it.
Q: How would a stablecoin like USD Coin solve the pain-point of cryptocurrency adoption in commercial use? What is Circle’s ambition with regard to the USD Coin?
A: We and CENTRE have a lot of ambition for USDC. The major application for fiat stablecoins over the last 18 months has been as a mechanism for trading and hedging in global crypto capital markets. Investors and traders need seamless on- and off-ramps for fiat currency into the exchange ecosystem, and need to be able to hedge in and out of volatile crypto assets, as well as for moving stable value across exchange venues to seek arbitrage and liquidity opportunities.
Very often, we hear industry players point out that there is no obvious stablecoin solution they could choose to incorporate into their own projects. As with other technology components, the stablecoin of choice has to be open, interoperable, safe, transparent and trustworthy. USDC was designed by CENTRE to effectively become a solution that anyone can use and contribute to.
This initial trading and markets use case will clearly give way to a much broader range of financial applications that include payments, lending, security tokens and trade finance.
Mainstream users want the benefits of cryptocurrency – global reach, nearly instant and low-cost transmission, open standards, and programability – combined with price stability.
Q: Is there any specific target and timeline on USD Coin’s market share/adoption that you can share with us?
A: We don’t have a hard target but expect it to be widely adopted, globally, in the months and years ahead.
Second part: Circle CEO upbeat on stablecoin outlook
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