A comparison of Circle’s USDC and AAA Reserve stablecoin

Circle, which is a well-funded and large payments and exchange business, has identified the need for stablecoin(s) to create a better use case for crypto users.

They are looking to build a series of stablecoins, pegged to different fiat currencies. Starting with USD — “USDC”, a coin backed by one US dollar for every one USDC.

AAA Reserve is one of the earliest yet smaller fiat-collateralised stablecoins (AAA Reserve is operated by a not-for-profit, so is unable to attract large scale VC funding).

Here we take a quick look at the similarities and differences between AAA Reserve and USDC.

Similarities

There are a few features that are consistent across USDC and AAA Reserve:

• Collateralised by fiat
• ERC20 tokens
• Audited

Differences

However, there are many features that are different across USDC and AAA Reserve:

• Active: AAA has been live for 6 months — with transparent price discovery; USDC hasn’t yet launched
• Volatility: AAA has been 3x more stable than the dollar; USDC will be, at best, as volatile as USD
• Long term stability: AAA is able to track inflation over the long run; USDC will see value eroded by inflation
• Credit risk: AAA will hold cash and fixed income; USDC will only hold cash, taking credit risk on its banking partners
• Currency diversification: AAA will hold cash across the top 6 trade-weighted currencies; USDC will only hold USD
• Profitability: AAA is maintained by Arc Fiduciary Ltd — a not-for-profit; USDC is operated by a for-profit
• Independence: AAA is independent of any exchange; USDC is co-owned by the owner of Poloniex

To be determined

At the time of writing, there are a couple of key aspects of USDC which are, as yet, unknown:

• Custody: AAA is ring-fenced; USDC’s custodianship is as-yet unknown
• Regulatory status: AAA has been signed off by a regulator; USDC hasn’t declared its regulatory status or approach

We are pleased to see other, notable, entrants into the stablecoin arena. Helping to validate the importance of stablecoins to the cryptocurrency ecosystem. We believe there will be 5–8 stablecoins which are successful into the long run; in addition to a large number of single-currency pegs.

Regardless of which stablecoins will be the long-run survivors, we hope that they will all enable a greater adoption of blockchain technologies.