Goldman-backed Circle Launching Dollar-Backed Cryptocurrency

A startup company backed by Goldman Sachs has announced plans to launch the first-ever digital dollar, a move that some say could boost mainstream adoption of cryptocurrency.

Circle to Launch USD Coin

Fin-tech company Circle announced Tuesday that it is developing a crypto-version of the U.S. dollar that will allow users to more easily pay for goods and services. The so-called USD Coin will be pegged to the dollar, allowing users to purchase it through fiat money.

According to Jeremy Allaire, Circle’s chief executive, transfers between fiat currency and USD Coins can be executed within seconds thanks to blockchain technology. He indicated that the company will eventually add tokens for other currencies, such as the euro and British pound.

Development of USD Coin is being funded by a $110 million investment round led by Bitmain, an influential crypto-mining company. And because Circle is backed by Goldman Sachs, USD Coin will essentially be the first cryptocurrency launched by a major financial institution.

As one of the most well-funded startups, Circle has built a peer-to-peer payment network powered by blockchain technology. The company is said to be worth nearly $3 billion.

Work on USD Coin is expected to begin this summer.

Overcoming Volatility

USD Coin is attempting to overcome the issue of volatility currently plaguing the cryptocurrency market. Cryptocurrencies are meant to be used to pay for goods and services, but their value changes so often and so rapidly that merchant adoption is limited.

“It is difficult to use something like bitcoin if the volatility is so high,” Circle CEO Jeremy Allaire told reporters at a media event. “Something like this makes it more possible.”

Circle users will be required to hold $1 for every unit of USD Coin they possess, thereby ensuring price stability at all times. Though similar “stablecoin” projects exist, a lack of regulatory compliance makes their value difficult to gauge.

Tether is perhaps the best-known stablecoin on the market, but allegations of price manipulation and opacity around its actual holdings have raised alarm bells for regulators and investors. U.S. regulators have subpoenaed the company to verify its reserves. It came to light earlier this year that Tether is led by some of the same executives who currently run Bitfinex, one of the world’s largest cryptocurrency exchanges.

Tether’s USDT token is the second-largest cryptocurrency by trading volume, signaling strong demand for currency-pegged assets. As of Wednesday, nearly 16% of cryptocurrency transactions involved USDT.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi