Coinbase Global and Circle Internet Financial, the co-founders of the $26-billion token USDC, have announced changes to how the stablecoin will be governed. This decision comes in light of “growing regulatory clarity” in the U.S. However, it is important to note that achieving complete regulatory clarity may still take years, and regulators are likely to increase their scrutiny in the meantime.
In a joint blog post, Coinbase (COIN) and Circle stated their intention to dissolve the consortium established to manage USDC. Circle will now assume full responsibility for managing the token independently. As part of this shift, Coinbase has acquired a minority stake in Circle. The companies have also revised their agreement on splitting the interest earned from USDC’s reserves, although exact terms of the deal have not been disclosed.
This move represents the end of the Centre Consortium, an organization created by Coinbase and Circle to establish standards for stablecoins. The consortium was originally designed to allow other companies, alongside Circle, to issue stablecoins adhering to a common set of rules. However, the concept did not gain traction, and the consortium did not expand to include additional companies.
In the meantime, USDC has become a significant source of revenue as yields have increased. During the second quarter, Coinbase reported $201.4 million in interest income, the majority of which came from USDC. While this figure is lower than the previous quarter, it represents a significant increase from $32.5 million in the same quarter last year. For Coinbase, the rise in USDC revenue has been a welcome relief amid declining crypto transaction volumes.
Coinbase has assured its investors that the new arrangement with Circle will not affect its financial outlook. In a post on X (previously known as Twitter), Coinbase CEO Brian Armstrong emphasized that the decision reflects the growing regulatory clarity surrounding stablecoins both in the U.S. and globally. Armstrong and Circle CEO Jeremy Allaire believe that a separate governance body like Centre is no longer necessary, and the new structure will streamline operations and governance.
Overall, these changes in the governance of USDC demonstrate Coinbase and Circle’s commitment to adapting to the evolving regulatory landscape and ensuring the stablecoin’s continued success.
The Uncertain Future of Stablecoins in the U.S.
The regulation and governance of stablecoins in the United States remains far from certain. Recent developments suggest that regulators are increasing their scrutiny of coin issuers.
The House Financial Services Committee recently proposed a bill to establish regulatory clarity for stablecoins. However, Senate Democrats and the White House strongly oppose the bill, making it unlikely to become law in its current form.
Despite some progress made by lawmakers, industry experts remain skeptical about the prospects of passing stablecoin legislation during this congressional session. Isaac Boltansky, a policy analyst at BTIG, believes that optimism is unwarranted.
Meanwhile, regulatory agencies such as the Securities and Exchange Commission (SEC) continue to focus on stablecoins. Coinbase, in its second-quarter earnings report, disclosed that it had received investigative subpoenas from the SEC and state regulators regarding its stablecoin product. This investigation follows a lawsuit filed by the SEC in June against Coinbase for allegedly operating an unregistered securities exchange, although no charges have been brought specifically related to their stablecoin partnership. Coinbase has vehemently denied these allegations.
Additionally, the head of the Commodity Futures Trading Commission (CFTC) has stated his belief that tokens like USDC should fall under his agency’s jurisdiction as commodities.
Even Coinbase acknowledged in its quarterly report that the regulatory treatment of fiat-backed stablecoins remains highly uncertain.
Therefore, instead of a growing sense of stability regarding stablecoins in the U.S., it appears that a multitude of regulatory agencies will be launching investigations and potentially filing enforcement actions while Congress works on legislation over the next few years.
Until Congress is successful in providing clear guidelines, issuing stablecoins will continue to be a risky endeavor.
By Joe Light