In a recent report, America-based crypto exchange Coinbase has revealed its decision to support the Circle holding, the USDC stablecoin issuer, by engaging in equity staking in the firm. Capital Markets experts commented that the new development makes sense as exchanges depend on revenue generated from USDC interest. However, another spectator highlighted that the recent move might not improve USDC’s declining market.
According to the report, the Coinbase exchange revealed its plans to shore up USD Circle (USDC) stablecoin. Spectators pointed out that the decision of the exchange to take an equity stake in the stablecoin firm depicts that interest income emanating from the stablecoin firm is vital to Coinbase.
However, the exchange revealed the news when Circle is experiencing a significant market decline for USDC; also, the rate of rivalry in the stablecoin firm is rising with the newly launched PayPal stablecoin project. In addition, Coinbase pointed out the benefits of stablecoins to the general crypto ecosystem during its announcement.
Furthermore, Mark Palmer, a capital market analyst at Berenberg, remarked that Coinbase extending support to Circle is reasonable as 23% of the net revenue at Coinbase in 2023 Q2 emanated from USDC interest revenue. He continued that the exchange depends on the income, particularly when transaction revenue declines.
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USDC Records Significant 28% Drop In Market Capitalization
According to a report, Coinbase exchange gets its non-cash-based stakes in Circle Internet Financial. Meanwhile, the firm has yet to confirm the extent of its stake in Circle publicly. However, the new development supersedes the Centre Consortium. The Centre Consortium was jointly created in 2018 by Coinbase and Circle to provide a basis for several firms funding the launching of USDC.
JMP Securities’ Director of FTR, Devin Ryan, commented that it is expected that the latest changes, like the new equity stake that Coinbase took up, would help to incentivize and facilitate the two firms in order to improve the growth rate of Circle’s operations.
To analysts’ surprise, Coinbase revealed that it generated about $151 million in revenue from USDC interests in the second quarter of 2023, significantly dropping from the $199 million reportedly generated in the first quarter. In addition, the exchange linked the significant decline to the current 28% drop in the USDC market cap.
According to the report, USD Circle’s share in the global stablecoin market has been significantly dropping since the year started, as the total quantity of the token in circulation sharply dropped from $42 billion to $24 billion. Meanwhile, another source revealed that Tether USD (USDT), a major rival of USDC, recently recorded a significant rise in its market shares, contrary to USDC’s case.
Circle To Expand Operation Amidst Market Cap Decline
Avivah Litan, an expert analyst at Gartner blockchain firm, expressed her opinion that the recent action from Coinbase might not ease USDC’s challenges by alleviating its declining market. In her comment, she stated that Circle and Coinbase have little impact on customers’ demand for stablecoins and cryptos, whose initial utility case was to back decentralized finance transactions.
In conclusion, Latin pointed out that liquidity is flowing out of Circle’s chain, and no support from other chains can change the cause of the flow. In other words, receiving support from Coinbase is not enough to stop money from flowing out of Circle’s share market
Meanwhile, Circle Holdings recently revealed its plans to extend its stablecoin usage to six new blockchain platforms before October ends. When completed, the development would increase the number of chains supported by USDC to 15, according to the report. More so, this report surfaced simultaneously with Tether Holdings announcing its dissociation with three chains.
In addition, the report revealed that both Circle and Coinbase would be dissolving their USDC Centre Consortium and henceforth, Circle would be solely responsible for the operations, issuance, compliance, and smart contract keys of USDC. In a tweet, Jeremy Allaire, the CEO of Circle, remarked that the Centre Consortium is now outdated as global regulators are currently working towards achieving regulatory clarity in the stablecoin space. In June, the stablecoin firm revealed that it plans to open a business branch in Japan after the country launched its stablecoins laws.