Coinbase Takes Equity Stake In Circle, To Shut Centre Consortium

Coinbase and Circle, the two entities behind USD Coin (USDC), have announced new terms that would change the governance and funding of the USDC stablecoin. 

The new terms will see Coinbase acquire an equity stake in Circle, with the two also shutting the Centre Consortium, which initially governed the stablecoin. 

Coinbase Takes Equity Stake 

The new agreement reflects the shifting economics and popularity of the USDC stablecoin and comes at a time when it is facing competition from other stablecoins in the market and an uncertain regulatory environment. Competing stablecoins include offshore rival Tether and the recently announced PayPal stablecoin. As part of the new terms, Circle will also be launching USDC on six new blockchains over the next few months. The company hopes this will increase the adoption of the stablecoin, although it has not provided any details about how. In an update published on its website, Circle stated, 

“Circle and Coinbase, the founding companies behind Centre Consortium, a jointly managed self-governance consortium for USDC, have agreed that with growing regulatory clarity for stablecoins in the U.S. and around the world, the requirement of a separate governance body like Centre is no longer needed.”

It is also still unclear how big of a stake Coinbase got in Circle. However, what is known is that Coinbase did not give Circle cash for the deal, according to sources familiar with the matter. It is also not known which six blockchains will see the introduction of USDC. Circle did state back in September 2022 that it was looking to add Near, Polkadot, Optimism, and Cosmos. 

“USDC will be launching on six new blockchains between September and October, bringing multi-chain access of USDC up to 15 to continue accelerating USDC’s momentum with developers around the world.”

A Strong Alignment For Long-Term Success 

Circle CEO Jeremy Allaire stated that the new arrangement helps to “tune up the economics in a way that felt really fair for both of us.” He further stated that the equity lays the foundation for a good, strong alignment for long-term success. Coinbase and Circle previously operated using a revenue-share agreement outlined in financial disclosure forms from both companies. The split was based on the amount of USDC distributed by each firm and the amount of USDC held on each platform. 

Under the new agreement, income generated through interest will be equally shared from off-platform USDC, such as USDC held in DeFi wallets. 

A Major Change For USDC 

The shuttering of Centre is a significant change for USDC. The initial whitepaper showed Centre as a steward for a global, interoperable payments network that focused on consumers and would include a number of fiat-backed tokens. However, so far, Centre has only launched USDC, while Circle issued a euro-backed stablecoin which was accessible on two blockchains. 

However, recent initiatives around USDC have targeted the crypto developer community. These include the launch of cross-blockchain transfers and programmable wallets, which also reflect on the predominance of DeFi. 

Governance To Shift Under Circle 

Centre initially described itself as a consortium but only included Coinbase and Circle as members. This is because partnerships with other firms did not materialize. The organization, at one point, had over 20 employees, although this figure dwindled to under 10 in recent months. The new arrangement will see the governance of USDC shift under Circle. According to Allaire, governance under a separate entity like Centre was no longer needed as governments worldwide developed and adopted stablecoin legislation. 

Spurring Growth 

For the moment, Coinbase and Circle face a different challenge, that of spurring the growth of USDC. Back in March, Circle revealed that around $3.3 billion of the reserves backing USDC were stuck at Silicon Valley Bank. As a result, the stablecoin had briefly lost its peg to the dollar. However, the price recovered after the federal government guaranteed Circle’s deposits with the bank. However, USDC has seen a considerable decline in its market share, with most of the stablecoin market moving to Tether. Tether’s market cap is currently around $83 billion, while USDC is around $26 billion. 

The stablecoin markets have also seen a considerable shakeup with the introduction of PayPal’s PYUSD stablecoin, launched in partnership with Paxos. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.