Coinbase Tries Squaring the Circle

Coinbase is officially acquiring a stake in USDC stablecoin issuer Circle, according to joint announcement from the two companies.

Although the companies technically cofounded USDC in 2018, they operated as two separate companies. But that’s now changed as Coinbase will own a yet-to-be disclosed equity stake in Circle going forward.

Furthermore, Coinbase will begin receiving a larger percentage of the interest revenue generated by USDC. Prior to Monday (and as we discussed in Coinbase’s Q2 earnings outlook), Coinbase and Circle had a revenue split only based on the amount of USDC on their respective platforms.

Going forward, the two companies will also “now equally share in interest income generated from the broader distribution and usage of USDC,” as opposed to Circle having the larger share.

So let’s review:

What’s the deal mean for Coinbase?

Although the company was quick to announce that the deal would have no meaningful impact in this quarter’s earnings, we know that the deal only helps.

As The Street continues to demand less volatility and more diversification in Coinbase’s revenue, the new deal helps create a more predictable stream of revenue for the company.

What does the deal mean for Circle?

Well, probably more revenue as the deal may lead to an increase in USDCs market cap.

Which – speaking of the USDC market cap – it is bleeding out all over the stablecoin ecosystem. Although USDC is the world’s second largest stablecoin, it has been steadily losing market share since March. That’s when Circle revealed that it had more than $3 billion of it’s reserves stuck at SVB, causing USDC to briefly depeg.

And while USDCs market cap has fallen from $44 billion to just under $26 billion, the largest and most controversial stablecoin, USDTs, marketcap has risen to $83 billion.

TLDR: USDC isn’t losing in the grand scheme of stablecoins, but it certainly isn’t winning either.

But more importantly, the company will be able to focus on what it does best – issuing stablecoins. That’s why, the equity announcement was pared with an announcement that USDC will quickly be launching on six other blockchains. What the deal means in regards to any future public offering Circle though remains to be seen.

What does the deal mean for stablecoins?

Further entrenched competition. We can’t forget that just a few weeks ago, PayPal announced their somewhat odd PyUSD stablecoin. Quasi-like CBDCs are going to continue to emerge from traditional finance. It’s up to crypto to compete.

What does the deal mean for crypto?

We know that we speak to almost entirely western based readers here in CoinSnacks. Furthermore, we also know that many of our readers are just looking to make a buck (see story below).

But please don’t forget that crypto also has the power to help billions of people. Hyperinflation, double-digit remittance fees, slow moving money… these are only a few things that stablecoins can help solve.