Coinbase announces equity stake in Circle

Cryptocurrency exchange Coinbase announced Monday that it would acquire an equity stake in cryptocurrency operator Circle, and shut down their jointly managed Centre Consortium.

Circle is primarily known for their stablecoin USDC, which is one of the largest stablecoins by market cap.

In a blog post by Coinbase founder and CEO Brian Armstrong and Circle founder and CEO Jeremy Allaire, both CEOs announced that “with regulatory clarity for stablecoins in the US and around the world, the requirement of a separate governance body like Centre is no longer needed.”

As such, the Centre Consortium, which has thus far been responsible for governing and issuing the USDC stablecoin, will be shut down.

Instead, all responsibilities for governance and issuance will be taken up by Circle. Circle will hold all smart contract keys, and be responsible for complying with regulations on governance of reserves and enabling USDC on new blockchains.

The founders believe that “the new structure will streamline operations and governance, and enhance the direct accountability of Circle as the issuer”.

The announcement also stated that Coinbase and Circle have reached a new agreement, which includes Coinbase taking an equity stake in Circle, giving them “greater strategic and economic alignment on the future of the financial system”.

Additionally, both companies will continue to generate revenue from USDC reserves interest income, and share this revenue based on the amount of USDC held on each of their platforms.

USDC reserves are held in US Dollar- denominated assets, with 80 per cent of them being held in short-dated US Treasury bonds, and 20 per cent in cash deposits. Circle also publishes monthly reports on how much reserves are being held.

In March, the peg of the USDC stablecoin came under strain when Circle revealed that it had significant deposits in Silicon Valley Bank, which had just declared bankruptcy. The news caused many USDC holders to sell their tokens, causing the stablecoin to depeg by almost 10 per cent.

The crisis was eventually resolved when the Federal Reserve authorised the use of its Deposit Insurance Fund to guarantee any funds still left in the bank by depositors.