The biggest US-based crypto exchange Coinbase announced that it has purchased a stake in USDC stablecoin issuer Circle amid growing regulatory scrutiny in the US and other parts of the world.
This could be great news for Circle as well since the USDC issuer was losing market share over the last year. In a blog post on Monday, August 21, Circle stated that its combined revenue with Coinase from the USDC coin “will continue to be shared based on the amount of USDC held on each of our platforms, and additionally we will now equally share in interest income generated from the broader distribution and usage of USDC”.
The news comes at a time when the regulatory developments around stablecoins are picking up. Last month, a key member of the US House of Representatives panel advanced a bill in order to regulate stablecoins.
Both companies, Coinbase and Circle were co-founders of the Centre Consortium that governs the USD Coin stablecoin. In its blog post announcement, Coinbase said that they would be dissolving Centre.
Coinbase stated that the Centre organization will no longer operate independently, and Circle will now take over the role of issuing USDC. This change means that the Centre’s responsibilities related to governance and operations will be integrated within Circle.
This new arrangement aims to make operations and governance more efficient and improve Circle’s direct responsibility as the issuer. This includes managing the smart contract keys, adhering to regulations regarding reserve governance, and making it possible to use USDC on different blockchain platforms.
Circle USDC – Navigating Through Regulations
Circle has been having a tough time dealing with market developments and regulatory changes. It also faced the heat of the major banking scandals earlier this year. The USDC issuer had a $3.3 billion exposure to the Silicon Valley Bank that triggered a brief depeg of USD Coin.
For a while now, Coinbase has been receiving a portion of the revenue generated by USDC. USDC is backed by a reserve of assets, including assets that can be easily turned into cash, like money and government bonds. As borrowing rates have risen to levels not seen in 15 years, the interest income from USDC has become an important source of financial gains for Coinbase.
During the second quarter, Coinbase generated $151 million in revenue from USDC, as stated in its shareholder letter. A spokesperson from Coinbase mentioned on Monday that the company doesn’t expect any changes to its previously communicated financial outlook.
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