Coinbase, Circle Partner To Launch Digital Currency USD Coin

Cryptocurrency exchange Coinbase announced Tuesday on its Medium blog a partnership with Circle, a peer-to-peer payments technology company. The two cryptocurrency companies have started a joint venture called CENTRE Consortium to launch a digital currency called USD Coin (USDC). This joint venture with the new currency aims at speeding up adoption of cryptocurrencies backed by fiat currencies like the dollar.

"Coinbase and Circle share a common vision of an open global financial system built on crypto rails and blockchain infrastructure, and realizing this vision requires industry leaders to collaborate to build interoperable protocols and standards. CENTRE was formed to establish these standards and to build the technology needed for fiat to work over the open internet," Jeremy Allaire and Sean Neville, Circle cofounders, said in a blog post on the Circle website.

USDC is a "stablecoin technology and network scheme" — a stablecoin is a cryptocurrency designed to minimize price volatility. These cryptocurrencies are used as stores of value or units of account, as well as in other use cases where volatile cryptocurrencies may be less desirable.

Circle, valued at $3 billion in its most recent funding round, issued USDC a few weeks ago and with the joint venture announcement, Coinbase is making it available to its customers on Coinbase Pro and Coinbase.com. The announcement by Circle said USDC had gained industry support from more than 40 companies including wallets, exchanges, custodians, dApps and other firms who were helping to "build a new open global financial system."

This is the first time Coinbase has backed a stablecoin, which it said is "fundamentally different" from other cryptocurrencies.

"Unlike bitcoin or ether, a USDC is meant to represent a single U.S. dollar (USD) that does not move up or down relative to its reference currency. One USDC is a 1:1 representation of a U.S. dollar on the ethereum blockchain," a Coinbase blog post read.

Allaire told CNBC in an interview he was not certain if trades and investments in the future cryptocurrency economy would be done in bitcoin. He said investors could still rely on government-backed money, "it just needs to be able to operate on the same blockchain technology."

USDC is not meant to replace the U.S. dollar but it's a way to use an existing fiat currency and make it compatible with the crypto infrastructure, which crypto advocates say is better and faster than existing payment rails, Allaire explained.

There are currently many stablecoins including tether, paxos standard, centre, and gemini dollar. The price of tether fell by 90 percent in October, following reports that the Hong Kong-based cryptocurrency exchange Bitfinex — the main platform where tether is traded — was insolvent. Critics questioned whether tether was truly backed by an equivalent amount of U.S. dollars. With a market cap of $2 billion, it is the only stablecoin among the top 10 cryptocurrencies.