Coinbase’s stablecoin bet pegs to wishful thinking

Jun 11, 2023

Representations of cryptocurrencies are seen in this illustration, August 10, 2022. Acquire Licensing Rights

NEW YORK, Aug 22 (Reuters Breakingviews) - Coinbase Global (COIN.O) is keeping its options open. The crypto exchange will take a minority stake in Circle Internet Financial, issuer of stablecoin USDC. Such tokens, designed to track the U.S. dollar, haven’t delivered on promises of transforming finance. The deal promises little near-term payoff, but does at least keep the dream alive.

Coinbase already earns interest from reserves backing USDC through a partnership with Circle, and doesn’t expect any new major financial benefit. Instead, the companies tout expanding USDC to new blockchains and simplifying governance to benefit from growing “regulatory clarity.” But stablecoins need to grow substantially to handle enough payments to supplant traditional finance, and USDC’s $26 billion market capitalization is down more than 40% this year after briefly losing its peg to the dollar. Meanwhile, U.S. legislation to regulate the tokens is stalled, and PayPal’s (PYPL.O) stablecoin launch last month drew criticism from Representative Maxine Waters, among others.

The benefit might be in shoring up Coinbase’s toehold in the market – especially given questions surrounding arch-rival Tether, which is under government investigation, the Wall Street Journal reported. Coinbase, meanwhile, is cozying up to pillars of traditional finance like BlackRock (BLK.N). If competitors stumble, boss Brian Armstrong has held a position to pick up the pieces.(By Anita Ramaswamy)

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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