Circle and Ava Labs want to demystify stablecoins for everyday users

Stablecoins are expanding quickly, but to hear it from John Wu, president of the blockchain company Ava Labs, there's still miles to go before this category of cryptocurrency — which ties its value to that of a government-issued currency — offshoot is widely used in the market.

"We need scalability. Not just tens of millions of people. We need billions," Wu said after a virtual conference with Circle CEO Jeremy Allaire.

Avalanche, an Ava Labs blockchain platform that powers cryptocurrency transactions, is a new partner for Circle, the Boston-based cryptocurrency exchange and issuer of the USDC stablecoin.

The two firms are attempting to make stablecoin payments accessible to a broader audience by making the underlying technology regulated, easier to understand and use, and applicable to a broader range of use cases.

"A lot of the energy in blockchain is around crypto and speculative money," said Alenka Grealish, a senior analyst at Celent in Portland, Oregon.

Stablecoin issuers need to develop and highlight use cases that have social value to stand out from the general public perception of cryptocurrency, Grealish said. "There needs to be safety and education. Right now you have crypto ATMs showing up at gas stations with flashing lights saying 'buy crypto here.' That doesn't help the underbanked."

Building blocks

The race to make stablecoin payments mainstream has been shaken up following Meta's departure from the market through its sale of the unlaunched Diem's assets to Silvergate Bank. Visa and Mastercard have signaled an openness to supporting stablecoin payments and PayPal is working on a potential stablecoin. These offerings would join Circle, Tether and others that are already available.

"Stablecoins are not all the way there where they can be used at every point of sale," Allaire said during the virtual conference. "There's a last mile or user experience layer."

Stablecoins were developed as a hedge against the volatility of cryptocurrencies. While this is an important step to mainstream acceptance, there also needs to be a way to access stablecoins in a manner that more resembles traditional currency, according to Allaire.

Circle and the New York-based Ava Labs publicly launched a collaboration this month that was first announced in December. The two firms hope to create more payment options for developers and other participants in Avalanche's open network of distributed finance apps, fintechs and other digital asset initiatives.

Jeremy Allaire, Circle
"Stablecoins are not all the way there where they can be used at every point of sale. There's a last mile, or user experience layer," said Jeremy Allaire, CEO of Circle.

While companies like Circle can offer infrastructure to make it easy to use stablecoins, many people remain unconvinced that there are use cases that merit the introduction of a totally new currency, according to Talie Baker, a strategic advisor for Aite-Novarica in Denver.

"They are a great tool for making cross-border payments more efficient and stablecoins are great for providing the on and off ramps between traditional currencies and cryptocurrencies such as bitcoin," Baker said. "But no one is really moving off the needle to use stablecoins yet. Stablecoins are kind of like blockchain, a solution looking for someone to see the value in the problems it solves."

As part of the Circle partnership, Avalanche's developers can access Circle's application programming interfaces, which have been rebuilt to support USDC. Ava Labs' recent deployments include a deal with Deloitte to provide the technology to support a disaster recovery platform that helps first responders and other agencies qualify for government disbursements faster, then streamlines the payments from the governments to those agencies. It's a use case that requires speed and accessibility for people and agencies who don't normally access a blockchain, and is transferable to other payment types, Wu contends.

A growing market

There's more than $140 billion worth of stablecoins in circulation as of the end of 2021, up from less than $40 billion a year earlier. That growth is fast enough to attract attention from politicians and regulators, but stablecoins are a very small portion of the overall payments market — and academics and the U.S. government are still researching what stablecoins are and how they fit into the economy.

"The concept of what a digital asset is is not always clear to everyone," Wu said. "There needs to be a layer that allows the transaction to be seamless … [peer-to-peer] apps look messy under the hood but they are easy to use."

Circle also recently renegotiated its deal with Concord Acquisition Corp., the New York-based special-purpose acquisition company that plans to publicly list it. The new SPAC deal doubled Circle's valuation to $9 billion, potentially creating more funding for Circle. In an email, a Circle public relations representative said being public is part of the company's core strategy to enhance trust and credibility in Circle.

"Circle has the opportunity to be the bridge between Web 3.0 and traditional finance," Grealish said of the move toward an internet structure based on distributed ledgers and decentralized technology. Circle's intent to obtain a bank license signals it is willing to work with regulators, Grealish added.

Ava Labs and the new SPAC deal would both help Circle expand among blockchain users. Circle also supports the Steller Network, a permissionless blockchain that is designed to process payments, covering a network of hundreds of exchanges and wallets that enable payments in both cryptocurrency and traditional money.

Other blockchain partners include Solana, which scales data services; Algorand, which provides technology tools to build financial services apps; and Ethereum, the largest blockchain for decentralized applications.

The goal is to reach an audience of merchants and consumers that doesn't necessarily know the difference between a blockchain or a traditional payment process, Allaire said.

"There's already lots of use cases emerging," Allaire said. "We're optimistic."

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