The surprising tie up between USDC stablecoin issuer Circle and Binance

2024-12-14 09:54:31 Primitive Reading

From ledgerinsights

Yesterday Binance, the world’s largest cryptocurrency exchange, announced a ‘strategic partnership’ with stablecoin issuer Circle. It’s not the most obvious tie ups for a couple of reasons. Circle is the issuer of the world’s second largest stablecoin, USDC, with a market capitalization of $41 billion.

Many stablecoins have been associated with particular cryptocurrency exchanges. Circle’s USDC is Coinbase’s stablecoin because the two companies founded the stablecoin together via the Centre Consortium, which has since been disbanded. Coinbase has a stake in Circle and still receives interest on the stablecoin’s reserves. In the nine months to September 30, Coinbase earned $685 million from USDC, around 17% of its revenues. So in theory Binance’s use of USDC will provide profits to its largest competitor. That’s probably not the case in practice, which we’ll come back to.

Until not too long ago, Binance had its own stablecoin BUSD that was issued via Paxos. In early 2023, Paxos’ regulator New York State Department of Financial Services (NYDFS) instructed Paxos to stop issuing new BUSD stablecoins, with the balance wound down over the following year. The BUSD stablecoin balance was $16 billion, with $13.5 billion held by Binance.

According to Bloomberg sources, Circle had allegedly reported issues re BUSD to the NYDFS. So if you believe the Bloomberg report, potentially there was also bad blood with both Paxos and Binance.

It seems the hatchet has been buried on the Binance side. Until that point, Paxos was considered the safest pair of hands because it operates a regulated trust for stablecoin issuance, whereas Circle does not. PayPal uses Paxos as its stablecoin issuer. Paxos had been announced as a partner of EDX Markets, the institutional exchange founded by Schwab, Citadel Securities and others. However, Paxos was dropped. It’s unclear whether that change had anything to do with the BUSD saga.

What’s changed in the stablecoin world?

Despite this history, there are several potential reasons for the tie up, the most obvious one being it makes business sense.

Last month Paxos announced the Global Dollar (USDG), a new stablecoin launched out of Singapore. The Global Dollar wants to incentivize distribution partners by sharing the interest earned on the reserves. So far Paxos has signed up Robinhood, Nuvei, Kraken, Anchorage Digital, Galaxy and Bullish.

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