- Circle launches its own stablecoin pegged against USD.
- “Our view is that all fiat currency will be crypto,” says Circle CEO Jeremy Allaire.
- Purpose of the USD Coin is to bring mainstream financial processes into the world of cryptocurrency and blockchain technology.
Circle – an American fintech start-up – is looking to make improvements to the US dollar (USD) by tokenizing it via the use of blockchain technologies. In a recent CNBC interview, Jeremy Allaire (Circle CEO) predicted that eventually all fiat currencies will turn into cryptos through stablecoins pegged to fiat currency values.
Circle Turn its Focus Towards Crypto
Circle recently purchased Delaware based cryptocurrency exchange Poloniex. This is on top of securing $110 million in Series E funding from Bitmain, one of the most profitable companies in the crypto sector.
Allaire – much like other experts in the field – sees blockchain as the future of the financial system. He believes that more and more layers of traditional finance can be built on top of Blockchain’s protocols and infrastructure. “Our view is that all fiat currency will be crypto,” Allaire said.
Tokenizing Fiat Currencies
The partnership between Bitmain and Circle has led to the development of a model whereby fiat currencies can be tokenized – before being run over the public Blockchain. In principal at least, this should allow for a much faster and secure settlement process.
This fiat tokenization model will enable Circle – along with other financial institutions – to turn regular fiat currencies into cryptocurrencies using the Blockchain network. This new type of stablecoin solves the key problem of volatility in the crypto markets.
Reduction of Volatility
One of the biggest arguments against using cryptocurrencies for payment is its volatility. By the time the payment has been received, it can often no longer be worth the original agreed upon sum.
Stablecoins – such as Circle’s new USD Coin – enable the cryptocurrency to be converted into another cryptocurrency. This is then pegged against a fiat currency, before being transferred to the payee. The use of USD Coin should reduce blockchain fees, enabling the process to become much faster and more streamlined.
With stability and security, it won’t be long before every fiat currency has its own crypto version to facilitate crypto payments and financial contracts.
Uses for Fiat Stablecoins
Allaire highlighted 3 main uses for a fiat stablecoin. The one that most retail investors will be interested in, is that it enables hedging of crypto investments in a fast and friction-less way. Also, smart contracts will be able to be denominated in fiat. This enables the Blockchain network to be used in a much broader range of activities and capital market cases, such as IPOs and Bond issues.
The third use is making payments in dollars, euros, yen, or any other fiat currency to anywhere in the world within 15 seconds. Payments can be sent to any device, anywhere, and at any time in a safe and secure way without excessive bank fees.
Total tokenization of all fiat currencies is currently unrealistic, but the global reach the Blockchain network provides a promising future for stablecoins.