Coinbase announced Tuesday it will offer a US dollar-pegged stablecoin to its users. US Dollar Coin, or USDC is 100% collateralized by the US dollar, according to Coinbase. The coin is expected to have regular audits.
USDC is created by the technology of CENTRE Consortium. CENTRE is comprised of Coinbase and Circle as founding members.
Coinbase users can buy, sell, send and receive the USD Coin stablecoin (USDC) on the crypto exchange. Additionally, USDC is also available in the Coinbase smartphone apps.
The popular crypto exchange has over 20 million customers and has reportedly brokered over $150 billion in transactions.
USDC marks a different approach for Coinbase, who traditionally supported only cryptocurrencies. This is the first stablecoin Coinbase is offering on their platform.
Coinbase explained USDC in their blog post announcement: “Unlike bitcoin or ether, a USDC is meant to represent a single US dollar (USD) that does not move up or down relative to its reference currency. One USDC is a 1:1 representation of a US dollar on the Ethereum blockchain.”
In other words, stablecoins make it easier for users to transact in the crypto space. USDC is a digital dollar. Having digital dollars in your crypto exchange account means you can get into and out of positions faster, without having to go through wiring in fiat currency before every transaction.
Coinbase points out three main use case for Stablecoins like USDC:
- USDC functions as currency in decentralized applications (dApps). The coin is built on the ERC20 network (part of the Ethereum blockchain). ERC20 is the prevailing way to develop new applications on the blockchain. Therefore, USDC will easily integrate into the current system.
- The unit of exchange can also be easily transferred between two parties. For example, two parties can transfer USDC from one Ethereum wallet to another.
- USDC is programmable, making it accessible to developers in the crypto space. Understandably, this is important for adoption as regular users/traders and developers must be able to interact with the token. This is a phenomena known as “network effects” – namely, the network becomes more valuable the more it is used.
Stable transfer of value
If cryptoassets are to gain mass adoption, there must be a way to stabilize the price fluctuations. Stablecoins aim to address that need. Most importantly, if two parties want to transact in crypto, there’s no way to accurately predict the value of the asset transfer because the price changes all the time.
Imagine if you wanted to send Bitcoin to a friend, but by the time they received the payment the price had gone up or down. It makes transferring value extremely difficult.
When transferring stablecoins like USDC, it’s similar to transferring fiat currencies. Therefore, if you send 10 USDC, you know 10 USDC will arrive without a major value and price fluctuation.
Coinbase approved as qualified custodian
Notably, New York regulators have approved Coinbase’s request to form a qualified custodial firm for cryptocurrencies. Coinbase Custody Trust will offer custodial services for Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Ether Classic and Ripple.
This is a major step forward where qualified custodian services have been absent in the crypto market. Regulated financial bodies such as pension funds, endowments and hedge funds must use a qualified custodian to store their assets. Traditionally, many crypto investors “self-custody” meaning they are responsible for keeping track of the assets. The most common way to self-custody is via a hot or cold wallet.
However, self-custody has been fraught with problems and horror stories of crypto holders losing the hardware device storing their holdings, forgetting passwords, or even throwing away computers with millions of dollars of crypto stored on the hard drive.
To avoid these catastrophic losses, institutional investors use qualified custodian to ensure the assets are safe. Until this point, there haven’t been any qualified custodians in the crypto space, though that is changing rapidly.
New York’s Department of Financial Services (NYDFS) approval of Coinbase Custody is a step in the right direction. Following the approval of more qualified custodians, institutional investors will begin to allocate more into the crypto markets, potentially causing another stronger and longer bull run in the future.
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