Boston crypto firm Circle takes heat from California rival

Circle CEO Jeremy Allaire spoke during a House Financial Services Committee hearing in 2021.Jabin Botsford/The Washington Post

The news headlines over the past 24 hours haven’t exactly been flattering for Circle Internet Financial, Boston’s biggest crypto startup and issuer of the digital currency known as USD Coin, or USDC.

There are about $52 billion of Circle’s digital coins in circulation, all backed dollar for dollar by real assets like Treasury bills and bank deposits. That qualifies USDC as a “stablecoin,” largely immune from the price swings that can hit bitcoin and other unbacked cryptocurrencies.

But on Monday, Binance, one of the largest digital currency exchanges, announced it would begin automatically converting all of its customers’ holdings in USDC and two other rival stablecoins to its own coin, called Binance USD, another stablecoin also backed by real assets.

“Binance to discontinue support for rival stablecoins,” read one crypto trade publication headline. “Binance to end support for USDC, other stablecoins,” read another.

The technical issue behind the headlines turns out to be less negative for Circle. Binance isn’t rejecting customers who wanted to deposit USDC or who wanted to withdraw crypto holdings in the form of USDC.

In fact, the exchange, which has its US headquarters in Palo Alto, will let its customers automatically convert Binance stablecoins into USDC when they make a withdrawal, just as the exchange automatically converts from USDC on the way in.

The aim, in addition to boosting the amount of Binance stablecoins in circulation, is to reduce the complexity that the exchange faced in converting its customers’ holdings among various crypto products. By automatically converting customers’ USDC and two other rival stablecoins all into its own stablecoin, Binance cuts down on the different types of conversions it has to do when customers make trades on its platform.

Evgeny Gaevoy, founder of crypto firm Wintermute, explained that currently, Binance might have to offer trades into bitcoin from USDC, its own stablecoin, and several others. Each pairing was in essence a separate market that Binance had to maintain for bitcoin trading. By consolidating the trading volume in one stablecoin, customers should get better prices and faster execution.

“If in the past you wanted to trade Bitcoin/USDC because you had USDC, now you can trade much more liquid Bitcoin/Binance USD pair all while depositing and withdrawing USDC from Binance,” he said.

Circle cofounder and chief executive Jeremy Allaire tweeted that the change could help USDC. “With consolidated dollar books, it will now be easier and more attractive to move USDC to and from Binance for trading core markets,” Allaire wrote.

But the Boston firm, which is in the process of going public, does have some concerns about Binance’s unilateral move to benefit its own stablecoin over Circle’s, a spokesman said.

“While optimizing dollar liquidity on the world’s largest exchange may carry benefits, the paradigm does raise potential market conduct questions,” he said.