Coinbase Confirms Circle’s USDC High Yield Operation
A recent report has confirmed that Circle is paying interest to Coinbase and potentially other companies in exchange for holding funds in USDC. The information was released in Coinbase’s Q2 shareholder letter: “Interest income was $33 million, up 211% compared to Q1. The increase was primarily driven by our USDC activity.”
The Validity of USDC’s Market Capitalization
This news comes after USDC adoption continues to slow despite claims it would heavily compete with Tether for market share of global stablecoin transactions. Trading volume for USDC continues to slow down, which may have led to Circle incentivizing the use of its stablecoin for large platforms and exchanges.
Twitter users have been vocal on the topic and a number of theories have arisen. Early Bitcoin investor and television presenter Stacy Herbert points out that Circle is paying large exchanges to hold USDC in order to prop up their market capitalization.
This could explain why the currency continues to be one of the top coins while trading volume continues to dwindle.
Will Circle’s Operation Last?
A tweet released by @CryptoInsider23 in late June claimed that Circle’s USDC operation would collapse since they were on track to lose more than $1.5 billion by the end of 2022.
However, Colin Wu dismissed these rumors following the tweet. Wu argued that while Circle is overcollateralized, the company is transparent with their positions and continues to grow. Circle is currently pursuing a U.S. stock listing with plans to go public in the future.
Additionally, @CryptoInsider23's tweet stated that Circle was paying two banks higher rates than what they were making on cash deposits. These rates were claimed to be around 5% interest per year based on interest rates at the time that the tweet was posted.
Coinbase's recent shareholder report does not provide a breakdown between interest earned from USDC, Coinbase's subscriptions, and the exchange's services. These revenue streams are grouped under a single category named “interest income.”