Not every form of cybercash is going down in flames.
USD Coin, a digital currency created by Boston-based Circle Internet Financial, is worth exactly as much today as it was last year — one dollar. And that’s making USD Coin a safe haven for investors scrambling to sell off their holdings of bitcoin, Ether, and other volatile cryptocurrencies.
“You might call it the importance of being stable,” said Dante Disparte, Circle’s chief strategy officer. Indeed, USD Coin is a “stablecoin,” a kind of digital currency that offers a safer alternative to more familiar cryptocurrencies.
Bitcoin, Ether, and the like are computer-generated currencies with values that can fluctuate by thousands of dollars in a day. By contrast, USD Coin is created by simply depositing US dollars with Circle. Each depositor gets USD Coins worth exactly as much as the dollars deposited. Circle holds the US dollars in the form of cash, or easily traded short-term US Treasury securities, ensuring that there’s actually a dollar behind every USD Coin in circulation.
This wasn’t the original plan for Circle, which was founded in 2013 to help people easily buy and sell bitcoin and other cryptocurrencies. Early on, the company offered a smartphone app where people could store their crypto, and make fast, low-fee international money transfers by sending crypto instead of dollars. But in 2019, Circle gave up on this concept and reinvented itself as a stablecoin company.
The stability of USD Coin prevented Circle from cashing in on the cryptocurrency gold rush of recent years. But it’s also shielded the company from the stunning collapse of recent weeks.
And now demand for USD Coin is surging as investors shift their assets from more volatile cryptocurrencies. Since Jan. 1, the market cap for bitcoin has fallen 56 percent, from $902 billion to $394 billion, according to CoinMarketCap, a financial website that tracks cryptocurrencies. But over the same period, the total value of USD Coin in circulation has climbed 31 percent, from $42 billion to $55 billion.
“It’s on course to be the third-largest digital asset on the planet,” said Disparte, trailing only bitcoin and Ether. For now, USD Coin is actually number four, trailing a different stablecoin called Tether. But Tether’s market cap has declined by 10 percent so far this year, and Disparte thinks USD Coin is in the passing lane.
But if USD Coin is worth exactly as much as a dollar, why not just use dollars? Because dollar transactions must go through the traditional banking system, a process that takes longer and costs more. Paying for something in USD Coin is more like sending an e-mail. The cash arrives almost instantly and with very low transaction fees.
This month, the global cash transfer company MoneyGram will begin offering a USD Coin-based version of its service. Users will be able to send USD Coin payments to anyone in Canada, the US, Kenya, and the Philippines, and the recipient will be able to cash out the equivalent in local currency. MoneyGram said it will offer the service free for the first year.
Stablecoins aren’t necessarily a sure thing. Tether, for instance, was fined $18.5 million last year by New York’s attorney general for allegedly deceiving investors about the strength of its financial reserves. And in May, another stablecoin called Terra collapsed completely. Unlike USD Coin, Terra wasn’t backed by actual US dollars, but by a computer algorithm that linked Terra’s value to that of a different cryptocurrency. When that currency fell in value, Terra was vaporized, costing investors $40 billion.
But Molly White, a Massachusetts-based software engineer who tracks the crypto world on her blog “Web3 is Going Just Great,” said USD Coin seems a lot more stable. “They are to some extent trying to do things ‘the right way,’” White said. ”If I were to try to pick the next five companies I think might collapse, Circle would not be among them.”
Meanwhile, Circle this week announced that it’s building another stablecoin, this time backed by the European Union’s currency, the euro. Set to launch on June 30, the Euro Coin will work on the same principles as USD Coin. Only this time, each Euro Coin will be pegged to the value of one euro, no matter what.