INTERNATIONAL – Circle Internet Financial is joining the controversial world of stable coins.
The mobile-payments and cryptocurrency trading firm is introducing a digital token pegged to the value of the US dollar to be known as USD Coin.
A consortium called Centre will serve as a platform for users to make deposits from traditional bank accounts, convert fiat currency into tokens issued by members to facilitate transactions and provide the ability to shift back to the greenback.
“Market infrastructure like stable coins will become the base layer that supports every financial application," Jeremy Allaire, chief executive officer at Boston-based Circle, said in a phone interview. “It has to be legitimate, trustworthy, built on open standards.
Issuance of stable coins is rising as crypto enthusiasts seek ways to increase the use of digital tokens amid increasing volatility. Tether has grown to become one of the biggest cryptocurrencies, but is shrouded in concern it’s not actually backed by dollars as its creators claim.
“We have spent our time largely disregarding these allegations, instead letting our efforts, and the continued faith of our community of users, speak for themselves,” Kasper Rasmussen, a spokesman for Tether, said in a statement. “All Tethers in circulation are fully backed by dollar reserves.”
Circle’s USD Coin follows the introduction earlier this month of the Gemini Dollar and Paxos Standard, which received approval from the New York Department of Financial Services.
While the Centre consortium is a wholly owned subsidiary of Circle, the company expects to spin it off as an independent organization in the coming months.
Centre will act as a watchdog over its stable coin issuers, making sure they have required government licenses and banking partners that can hold their dollar reserves.
The Tether rivals are starting to see traction. Gemini Trust has issued $379,000 Gemini Dollars since Sept. 10, according to data tracker Etherscan.
Paxos Trust launched a stable coin the same day, and it’s garnered $13 million so far, Chief Executive OfficerChad Cascarilla said.
In addition to Circle’s Poloniex exchange, the USD Coin will be available on a slew of Asian exchanges, including Huobi, OKCoin, KuCoin and DigiFinex, and digital wallets like Coinbase will support it, Allaire said.
Skeptics say whether stable coins live up to their promise is still an open question.
"I personally would not use stable coins as a place to keep your money," said Sam Doctor, managing director and head of data science research at Fundstrat. “There’s a big disconnect between the concept and the implementation right now."
The coins have major weaknesses, said Gil Luria, director of research at D.A. Davidson & Co. Some, like Tether, are backed by actual assets, but centrally controlled, so there’s a risk of the management absconding with the funds, or losing them to theft, he said.
Then there is the risk that a government decides to freeze the assets, he said.
“Investors purchasing stable coins are seeking the benefits of digital currency with stability of government currency," Luria said. "I am not sure that that’s possible. So people buying it may not appreciate that they are paying a lot for that feature, and it may not even be available."