Circle raises fresh funds; plans dollar-pegged token

Circle, a US cryptocurrency startup which counts Goldman Sachs among its backers, has closed a US$100 million Series E funding round that lifts the firm’s private valuation to nearly US$3 billion.

The latest investment was led by Chinese virtual coin mining giant Bitmain, according to an announcement Tuesday.

With the fresh funding, the Boston-based startup will push plans to create a new cryptocurrency pegged to the price of the US dollar.

The unit, called “Circle USD Coin”, will be backed by real reserves of US dollars and will aim to provide an efficient way for businesses and consumers to transfer value, Reuters reports.

China-based Bitmain is one of the world’s largest cryptocurrency mining companies and a leading manufacturer of the high-powered computer servers used for mining cryptocurrencies.

In the Circle financing, Bitmain was joined by existing investors such as IDG Capital, Accel, Breyer Capital and Pantera, as well as two new investors, Blockchain Capital and Tusk Ventures.

Former investor Goldman Sachs was not part of the latest round.

Circle uses the blockchain technology that underpins bitcoin to operate an app-based peer-to-peer payment network, and is one of the leading players in the over-the-counter market for bitcoin trading.

However, the startup sees the extreme price volatility of cryptocurrency as posings a major problem for its wider adoption, driving away enterprises and consumers.

“A price-stable medium of exchange and store of value is missing, and badly needed in order for global financial interoperability to function reliably and consistently,” Circle CEO Jeremy Allaire said in a blog announcing the deal. 

He believes a new type of token, so-called ‘stablecoin’, which is a cryptocurrency whose value is pegged to a stable traditional currency and backed by fiat currency reserves at a central bank, is the solution to overcome the volatility, serving as a digital medium of exchange.

Circle said that it is set to issue the new crypto token this summer. It will be run on a network managed by Centre initiative, Circle’s subsidiary focused on making payments interoperable between digital wallets online.

Bitmain will be involved with Centre and help launch coins linked to other fiat currencies, or legal tender, according to Circle.

Crypto news site CoinDesk notes that Circle sees the new crypto token as an open-source project, in a sense that regulated financial institutions would be authorized by Centre to issue the stablecoin, and many issuers could offer and manage different fiat-backed cryptocurrencies.

“Circle can be an issuer of US dollar coin, Square (a payments company) could be an issuer. If I got US dollar coins from Circle, I could transmit those to another digital wallet for an issuer,” Circle CEO Jeremy Allaire told CoinDesk.

Jihan Wu, Bitmain’s co-founder and director, told Fortune that he is bullish on what these ‘stablecoins’ may enable.

“I think in the future the markets are not only about cryptocurrencies and ICOs, but about stable tokens and traditional verticals like bonds and stocks,” he said.

There are some other cryptocurrencies that emerged in the market with an aim to address the price volatility, such as Tether token (USDT) which is linked to US dollar reserves and tied to the price of the US dollar. But the crypto token has faced criticism for its opacity.

Circle believes the existing fiat-backed cryptocurrency approaches “have lacked financial and operational transparency”.

Addressing the integrity and compliance issue, Allaire told Reuters that the company would provide quarterly audits on the reserves backing the USDC coin, and conduct strict anti-money laundering and other checks on individuals and companies looking to buy and redeem the new coins.

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