Goldman Sachs has been a hot topic for a while as they are starting to leverage blockchain technology. In December 2017, they reported to Bloomberg that they will have a cryptocurrency trading desk up and running by June 2018. Just a month away from their launch forecast, Goldman Sachs announced that it will be launching an USD backed stablecoin, the Circle USD Coin – USDC.

Who is behind the Circle USD Coin (USDC)?

Circle, which is a peer-to-peer payment technology start-up founded in 2013 and headquartered in Boston, were backed by Goldman Sachs between 2013 and 2016. Circle announced in May 15th that it raised $110 million USD in venture capital to create a stablecoin backed by USD. This investment round was led by Bitmain Technologies, a Chinese firm that designs ASIC chips and produces cryptocurrency mining equipment. This new coin will be managed initially by a subsidiary of Circle called ‘CENTRE’ which will be working with Bitmain to help launch the coins.

What is Circle USD Coin (USDC)?

This new token will be called ‘Circle USD Coin (USDC)’ and will essentially be ‘tokenized fiat money’ which is backed by USD reserves. The theory behind this coin sustains that due to its fiat backing, the price will be less volatile than that of traditional cryptocurrencies. However, the core aim of this project is to incentivize mass adoption of cryptocurrency, using the advantages of smart contracts and quick transactions with a token that can always be redeemed for USD.

The token was built on the open source Stablecoin framework for fiats which was developed by CENTRE with the aim of being used for crypto-trading and payments while operating in adherence to the US money transmission laws and associated regulatory frameworks. It will also be built on an open source framework with an open membership scheme allowing other eligible financial institutions to adopt and participate.

Problems with Existing Fiat-Backed Tokens

Circle (2018) have advised in their blog that “Existing fiat-backed (cryptocurrency) approaches have lacked financial and operational transparency.” To alleviate this issue, they aim to produce “quarterly audits on the reserves backing the USDC coin and conduct strict anti-money laundering and other checks on individuals and companies looking to buy and redeem the new coins.”

Potential Criticisms of The Circle USD Coin (USDC)

Generally speaking a cryptocurrency is a means to gain independence from traditional banking institutions. Cryptocurrency was created to allow people to hold their own assets and transact with them securely without having to trust others. Cryptocurrency is also free from government control and KYC requirements in essence. Therefore, a coin which complies with regulation, backed by government-issued fiat, that is an alternative to a credit card or a PayPal upgrade, is the antithesis of crypto.

Stable coins are an elusive goal. Fiat-backed cryptocurrency has been around for a while in the form of Tether – USDT. Nevertheless, there are a few contentious issues with any of these initiatives:

Cryptocurrency is not known for being user friendly. To incentivize adoption, Circle will have to solve something countless other companies have tried to do with varying levels of success, but without solving the problem completely.

Without a permission-less, robust, public blockchain, Circle will be playing a dangerous game in which hackers can change the ledger to their advantage.

KYC can be done at the source, but not everyone who pays for goods or services afterwards will be identified – unless onboarding requires people to use only one kind of wallet, which would create a monopoly that could be subject to anti-trust legislation.

If the idea is to create an ERC20 token, then any wallet that is ERC20-compatible can in theory receive USDC payments. Circle will have to police activity on their blockchain or payment system (which will probably be a glorified data base and not a blockchain) to prevent this.

Stablecoins can Cost you your Freedom!

This puts everyone back in a world in which financial institutions can exercise their veto power over transactions and governments are in charge of oversight. We all know how that ends – remember the 2008-09 economic melt-down. Giving up freedom for the sake of a stablecoin and leaving our financial destiny in the hands of banks and governments for the sake of enabling smart contracts, could e a bad deal.