Coinbase wants to create more stablecoins to diversify away from its longtime favorite, the beleaguered USDC. The $16 billion crypto exchange has published its intent to develop a suite of experimental, inflation-adjusting stablecoins. These so-called ‘flatcoins’ will denominate trading pairs on Base, its proprietary Ethereum Layer 2 network.
For years, Coinbase remained steadfast in its support of just one stablecoin. However, USDC’s multi-day de-pegging and almost permanent impairment this month shook that confidence.
Over the weekend of March 17-19, USDC issuer Circle held an incredible $3.3 billion at a single bank, Silicon Valley Bank (SVB). Circle submitted a wire request to withdraw those funds but failed to receive disbursement prior to a bank run that depleted the bank’s cash entirely. A few days later, FDIC officials took over SVB.
As the market feared the worst, USDC de-pegged across world markets into the low $0.80s.
In a historic move, the US Treasury and Federal Reserve decided to designate SVB as “systemically important” and bailed out all depositors, including those USDC assets.
Had the US government not come to the rescue, USDC could have permanently lost up to nine cents of every $1 ($3.3 billion of its $36.3 billion market capitalization at the time). Coinbase had frantically tried to provide a short-term lifeline during the chaos, as well.
Eventually and thanks to the bailout, USDC traded back to $1 by the Monday.
Despite USDC’s near-death experience caused by holding 9% of its reserves at one bank, the coin has centralized its assets even further. Today, a staggering four-fifths of USDC assets are managed by a single company, Blackrock.
Flatcoins: Allegedly inflation-protected stablecoins
As if the term ‘stablecoin’ wasn’t misleading enough, Coinbase is touting an allegedly improved version of stablecoins called ‘flatcoins.’ Flatcoins allegedly gain value over time and protect against inflation. Investor and author Allen Farrington has criticized inflation-linked cryptocurrencies as nonsense.
Coinbase thinks Base will be a great place for flatcoins to compete with other stablecoins, including its own USDC.
As noted above, even traditional stablecoins aren’t stable. USDC was worth less than $1 for several days, Tether regularly de-pegs, and many stablecoins, including TerraUSD, IRON, Huobi Dollar, CK USD, SpiceUSD, Decentralized USD, BasisCash, SafeCoin, BitUSD, DigitalDollar, USDN, and NuBits, have failed entirely.
Rumors are swirling that the SEC might even issue an enforcement action against USDC. Coinbase had to back off from offering loans and yield-bearing accounts denominated in stablecoins, after butting heads with the SEC over those offerings.
In any case, Coinbase has announced an ambitious package of developer incentives to encourage flatcoins on Base.
Despite how old, experienced, educated, and well-capitalized Coinbase workers are, CEO Brian Armstrong has so far failed to prove to the world that his team can handle the task of offering customers a stablecoin that is always worth $1. He’s now asking developers to create and customize inflation-linked cryptocurrencies for his new blockchain network.
His call for flatcoin developers could be interpreted as an attempt to diversify away from USDC and its problems.