The headlines of the past 24 hours haven’t exactly been flattering for Circle Internet Financial, Boston’s largest 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-world assets like T-bills and bank deposits. That qualifies USDC as a “stablecoin,” largely immune to the price swings that can hit bitcoin and other unbacked cryptocurrencies.
But on Monday, Binance, one of the largest digital currency exchanges, announced that it will automatically begin converting all of its customers’ holdings in USDC and two other rival stablecoins into its own coin, called Binance USD, another stablecoin also backed by real assets.
“Binance to drop support for rival stablecoins,” read a headline in a crypto trading publication. “Binance to end support for USDC, other stablecoins” read another.
The technical issue behind the headlines turns out to be less of a negative for Circle. Binance does not reject 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 allow its customers to automatically convert Binance stablecoins to USDC when making a withdrawal, just as the exchange automatically converts from USDC on the way in.
The goal, in addition to increasing the amount of Binance stablecoins in circulation, is to reduce the complexity that the exchange faced in converting customers’ holdings between different crypto products. By automatically converting customers’ USDC and two other rival stablecoins into its own stablecoin, Binance cuts down on the various types of conversions it has to make when customers make trades on the platform.
Evgeny Gaevoy, founder of crypto firm Wintermute, explained that Binance may currently have to offer trades for bitcoin from USDC, its own stablecoin and several others. Each pairing was essentially a separate market that Binance had to maintain for trading bitcoin. By consolidating trading volume into one stablecoin, customers should get better pricing and faster execution.
“If you previously wanted to trade Bitcoin/USDC because you had USDC, now you can trade much more liquid Bitcoin/Binance USD pairs while depositing and withdrawing USDC from Binance,” he said.
Circle co-founder and CEO 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 core markets trading,” Allaire wrote.
But the Boston firm, which is in the process of going public, has some concerns about Binance’s unilateral move in favor of its own stablecoin over Circles, a spokesman said. “While optimizing dollar liquidity on the world’s largest exchange may have benefits, the paradigm raises potential market behavior questions,” he said.
Aaron Pressman can be reached at [email protected]. Follow him on Twitter @ampressman.
