Saturday, 3 June 2023

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The US should promote USDC — before it’s too late

The US should promote USDC — before it's too late

Ignore the doomsayers. The United States is still the world’s leading economy and will remain so in the future. With its global talent pool and world-class institutions, the U.S. has a competitive edge in virtually every emergent technology. Web3 is no exception. 

Despite its advantages, America is bungling its chance to dominate the digital economy. In what Messari CEO Ryan Selkis aptly dubs “a colossal public policy failure,” America’s semi-official stablecoin, USD Coin (USDC), is losing ground to its ex-U.S. rival, Tether (USDT). If policymakers don’t step up soon, America may fall behind for good.

Manifest destiny in the metaverse

Until recently, USDC seemed destined to become Web3’s de facto reserve currency. Regulated by the U.S. Treasury and managed by Circle Internet Financial, USDC is a rare beacon of accountability in crypto. It is also phenomenally liquid. USDC is redeemable 1:1 for dollars, which Circle holds as cash or deposits in a transparent reserve managed by BlackRock.

Related: The world could be facing a dark future thanks to CBDCs

Users have taken notice. Since its launch in 2018 until last year, USDC’s circulating supply has grown at a blistering pace, averaging 860% annually, according to Circle. By mid-2022, USDC’s market capitalization had crested at $55 billion. Meanwhile, Circle began rolling out a veritable Marshall Plan for Web3 infrastructure, including on-ramping rails and custody solutions. It is now onboarding institutional clients.

Importantly, Circle heavily emphasizes U.S. regulatory compliance, including American sanctions. For better or for worse, Circle can freeze USDC in blacklisted wallets at its discretion. It has frozen more than 8 million USDC across more than 150 wallets to date, according to Dune. It’s clear that USDC is already a potent tool for projecting America’s power on-chain, and it’s just getting started.

Changing fortunes

In the past year, USDC’s fortunes have reversed dramatically. Since its 2022 highs, its market capitalization has dropped by nearly half to around $30 billion. In a brief but unsettling depeg in March, USDC’s price dipped below $0.90 on some exchanges. Even more concerningly, USDC has started losing ground to its ex-U.S. rivals, particularly Tether.

To be sure, USDC’s decline partly reflects sector-wide outflows, and its depeg, triggered by Silicon Valley Bank’s collapse, was a product of market panic, not poor fundamentals. However, the fact remains that, as…

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