Circle successfully completed the first transaction of issuance of USDC tokens on Algorand this month and the market capitalization of USDC exceeded two billion dollars; the motivation to expand and explore a multi chain framework was on full display. Issuance of stablecoins on a blockchain is a positive signal of enhanced liquidity for projects (existing and forthcoming) on that blockchain as it helps curb volatility at the same time promoting scalability.
Confirmed USDC transaction on Algorand
Furthermore, the introduction of stablecoins in a blockchain ecosystem is instrumental in enhancing the adoption of specific blockchain tokens as a form of investment with interests from all spheres including from institutional investors as well as financial institutions.
What’s in it for Circle and USDC?
For Circle, the USDC parent company, this is the first step in moving towards its vision to support a multi-chain framework to enable multi-chain transfers to support use cases, developers, and the ecosystems. With the ever increasing fee of transactions on Ethereum and lower transaction throughput (15 transactions per second), looking for a suitable alternative platform with low transaction costs and high throughput was imminent - Algorand, which already has a transaction speed of 1000 tps and plans to increase it further, came up as a suitable alternative which not only has negligible transaction costs but also has a high transaction throughput rate.
What does it mean for the Algorand ecosystem?
Algorand is an open source, secure, scalable, transparent, permissionless, blockchain platform with features such as Atomic Transfers, Algorand Standard Asset (ASA) and Layer-1 (on-chain) and Layer-2 (off-chain) smart contract options at high transaction speed and low transaction costs. ASAs are fast and secure as they are built directly into Algorand’s Layer-1 which includes optimal provenance with the option to quarantine asset accounts for investigative purposes, better compliance, and reporting by forcing the transfer of an asset where legal or other regulations require it, enhanced vigilance with whitelist model for privileged asset transaction thereby making them ideal for issuance of stablecoins.
With the addition of USDC following USDT earlier this year, the Algorand ecosystem has seen an increase in liquidity thereby making it a preferred choice for building dApps which require enhanced liquidity, lower transaction costs, seamless scalability and higher transaction throughput such as DeFi and financial services applications. The push by Algorand towards DeFi was enabled further with the addition of features such as Stateful smart contract, rekeying and fast checkup of nodes (check out my article on the same here) - to accommodate the requirements to handle faster the DeFi application development and propagate the transaction traffic at comparatively minimal costs with no compromises in execution time. Stablecoins play an important role in the DeFi ecosystem to reduce volatility and enhance credibility in the associated liquidity pools, USDC will be a boost for applications being built on the Algorand blockchain working on DeFi implementations.
The USDC issuance on Algorand is expected to encourage other blockchain projects to join this multi-chain system as well as lay the foundation for developing a wide range of scalable, secure and compliant financial applications. Wider adoption of Algorand, growth in the developer community and increase in the number of applications being built on the platform requiring faster transactions, lower associated fee along with liquidity and stability is on the cards with the addition of stablecoins in the ecosystem.