Chapter 10

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F. VC Involvement and Influence

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Venture capital has played a pivotal role in the development of USDC, both in terms of financial backing and strategic guidance. Circle has attracted investment from top-tier VCs and institutional investors, who have provided not only capital but also guidance on scaling operations, expanding the ecosystem, and positioning USDC as a market leader in the stablecoin space.

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1. Venture Capital Firms:

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Circle’s investors include some of the most renowned venture capital firms in the tech and fintech space, such as General Catalyst, Goldman Sachs, IDG Capital, and Peter Thiel’s Founders Fund. These firms have provided not only the necessary funding but also strategic advice and connections that have propelled Circle’s growth.

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Example: The involvement of Goldman Sachs and Founders Fund has not only provided Circle with significant capital but also strategic input on how to navigate the intersection of blockchain technology and traditional finance, positioning USDC for institutional adoption.

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2. VC Influence on Product Strategy:

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VCs have influenced Circle’s product development and market positioning. Circle has been advised on the importance of regulatory compliance and the need to adapt USDC to the growing demand for blockchain-based financial services, especially in the DeFi and cross-border payments spaces.

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Example: General Catalyst, a key investor in Circle, has been instrumental in guiding the company’s focus on ensuring USDC’s legitimacy and regulatory compliance, which has helped differentiate it from other stablecoins in the market.

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3. Strategic Partnerships:

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VC involvement has also enabled Circle to forge partnerships with other prominent players in the blockchain and finance ecosystems. This includes its collaborations with traditional financial institutions, such as Cross River Bank, to facilitate real-time cross-border payments and expand USDC’s use case beyond cryptocurrency trading.

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Example: Founders Fund, an influential VC, has helped Circle form alliances that have broadened USDC’s reach and increased its adoption among institutional investors and large enterprises.

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Sources:

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https://www.coindesk.com/markets/2021/05/20/usdc-issuer-circle-raises-440-million-in-funding-round-led-by-peter-thiel-backed-venture-fund/

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https://www.coindesk.com/markets/2020/10/15/circle-secures-75m-in-series-e-round-valuation-now-3-billion/

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https://www.coindesk.com/markets/2020/09/24/general-catalyst-and-idg-capital-lead-circle-series-d-funding/

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G. Revenue vs. Expenses

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Evaluating USDC’s revenue model against its expenses is vital in understanding the financial sustainability of the project. Circle, as the issuer of USDC, generates revenue through transaction fees, liquidity services, and OTC trading, while its expenses primarily stem from operational costs, regulatory compliance, and infrastructure development.

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1. Revenue Streams:

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USDC generates revenue by charging small transaction fees for issuing, redeeming, and transferring tokens across various blockchain platforms. These fees provide Circle with consistent revenue as USDC usage expands across DeFi platforms, exchanges, and other financial services.

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Circle also generates revenue from its OTC desk, which facilitates large transactions of USDC between institutional investors, and its liquidity provisioning services on various platforms.

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Example: USDC transaction fees, although minimal per transaction, accumulate significantly due to the volume of transactions on Ethereum, Solana, and other supported blockchains.

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2. Operational Expenses:

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Circle's operational expenses include costs related to technical infrastructure (supporting multi-chain deployment of USDC), regulatory compliance (ensuring USDC complies with U.S. and global regulations), and human resources (expanding its team in engineering, legal, and business development).

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Example: As Circle expands its team and regulatory operations, these expenses are likely to increase, but they are essential to maintaining the company’s commitment to regulatory transparency and operational excellence.

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3. Profitability Outlook:

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Given its low overhead costs, strong transaction fee revenue, and increasing adoption across different blockchain ecosystems, Circle’s profitability outlook appears positive. As USDC becomes more widely used for payments and DeFi applications, revenue generation from transaction fees and liquidity services will likely increase.

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Example: Circle has already demonstrated positive growth through its Series F funding and the growing adoption of USDC, positioning itself for profitability in the coming years.

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Sources:

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https://www.coindesk.com/markets/2021/01/15/usdc-issuer-circle-report-30-billion-market-cap/

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https://www.coindesk.com/markets/2021/10/15/usdc-issuer-circle-sees-stablecoin-gains-in-cross-border-payment-usage/

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https://www.coindesk.com/markets/2020/07/07/circle-expects-record-revenue-just-ahead-of-usdc-partnership-announcement/

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H. Investor ROI Considerations

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For investors considering involvement with USDC, it is important to analyze the potential returns on investment (ROI). Unlike typical equity investments, USDC’s growth is driven by the adoption and demand for the stablecoin across DeFi, cross-border payments, and institutional transactions. Therefore, ROI considerations for investors should be assessed based on the increasing adoption and usage of USDC in these sectors.

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1. Stablecoin Adoption Growth:

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As USDC becomes more widely used across the crypto ecosystem, particularly in DeFi protocols, demand for the stablecoin will increase. This will contribute to increased liquidity and transaction volume, driving up revenue generated from transaction fees and OTC trading services.

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Example: The growing use of USDC as collateral in Aave and Compound is contributing to the token’s growth, as more liquidity is channeled through these platforms.

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2. Institutional Demand for USDC:

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Institutional investors seeking stable exposure to blockchain technologies are likely to drive significant demand for USDC. USDC’s role as a compliant stablecoin for institutional investors provides a unique value proposition.

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Example: Institutional adoption of USDC for cross-border payments, OTC trades, and as collateral in DeFi could increase its demand, potentially leading to higher revenue generation for Circle.

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3. Long-Term Stability:

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As USDC maintains its peg to the U.S. dollar, its stability offers a low-risk, reliable investment vehicle. Although direct equity investors in Circle do not earn from the price appreciation of USDC itself, those involved in Circle’s funding rounds and strategic partnerships can potentially see a high return if USDC continues to grow.

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Sources:

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https://www.coindesk.com/markets/2021/12/17/usdc-issuer-circle-proposes-new-regulation-for-stablecoins/

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https://www.coindesk.com/markets/2021/12/10/usdc-issuer-circle-raises-400m-in-funding-round-led-by-peter-thiel-backed-venture-fund/

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9. Community & Ecosystem Growth

A. Governance Model in Practice (DAO)

The governance of USDC is managed through a decentralized model facilitated by the Centre Consortium, a collaboration between Circle and Coinbase. This consortium oversees the policies, decision-making processes, and regulatory compliance of USDC, which ensures its smooth functioning within the broader cryptocurrency ecosystem. The decentralized nature of this model plays a key role in ensuring that USDC remains neutral and scalable across various use cases and blockchain platforms.

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1. Decentralized Governance via Centre Consortium:

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The governance model of USDC is overseen by the Centre Consortium, which includes representatives from Circle and Coinbase. Centre’s mission is to govern the USDC stablecoin and ensure compliance with relevant regulatory frameworks. The consortium’s goal is to allow for a transparent and secure environment for the use and management of USDC across different blockchain platforms.

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The decision-making process within Centre is decentralized to ensure that no single entity has exclusive control over USDC’s policies and operations. While Circle and Coinbase are the primary entities behind Centre, they work together with regulators, financial institutions, and other stakeholders to manage USDC’s growth and adoption.

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Example: The governance structure ensures that decisions on the technical aspects, regulatory compliance, and token supply of USDC are made collaboratively, balancing the needs of different participants in the ecosystem.

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2. Impact on Community Engagement and Stakeholder Involvement:

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USDC's governance model, previously managed by the Centre Consortium, has evolved to be fully controlled by Circle. This centralized governance structure impacts community engagement and stakeholder involvement in several ways.

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Centralized Governance and Community Participation

USDC's governance is now centralized under Circle, which manages the stablecoin's operations, including minting and burning tokens. While this centralization enhances regulatory compliance and stability, it may limit direct community participation compared to decentralized governance models. However, Circle's transparent approach and regular audits by firms like Grant Thornton maintain trust among stakeholders.

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Regulatory Compliance

USDC operates under a robust regulatory framework, adhering to U.S. state money transmission laws. This compliance enhances its appeal to institutional stakeholders seeking stable and regulated assets.

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Impact of Centralized Governance

The shift to centralized governance under Circle has implications for USDC's adoption, particularly among fintech startups. While it may raise concerns about control, it also encourages trust among users due to enhanced regulatory clarity and stability.

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Conclusion

USDC's centralized governance model, managed by Circle, prioritizes transparency and regulatory compliance. While it may limit community participation compared to decentralized models, it maintains trust among stakeholders through regular audits and compliance with regulatory standards.

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References

How is USDC Governed? - https://aqru.io/insights/how-is-usdc-governed/

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USDC Explained: Everything You Need to Know - https://www.muralpay.com/blog/usdc-explained-everything-you-need-to-know

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Unpacking USDC: The Stablecoin Shaping Digital Finance - https://www.onesafe.io/blog/usdc-cryptocurrency-guide-benefits-future

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What Is USDC? | USD Coin Explained - https://www.kraken.com/learn/what-is-usd-coin-usdc

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USD Coin USDC - https://www.sygnum.com/digital-asset-banking/usd-coin-usdc/

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USDC | Digital dollars backed 1:1 with USD

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USD Coin

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USDC Terms

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3. Evolution of Governance Model:

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The governance model for USDC continues to evolve as the stablecoin market matures. Given the increasing scrutiny of stablecoins by global regulators, the governance model of USDC may see further decentralization or additional layers of oversight to maintain its integrity and ensure compliance.

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Example: The adoption of decentralized governance features, such as token holder voting, could be explored in the future to further increase community involvement and strengthen USDC’s legitimacy within the crypto ecosystem.

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Sources:

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https://www.circle.com/en/about

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https://www.coindesk.com/markets/2021/12/17/usdc-issuer-circle-proposes-new-regulation-for-stablecoins/

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https://www.coindesk.com/markets/2020/09/24/centre-consortium-sets-rules-for-usdc-stablecoin/

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B. Developer Activity and Ecosystem Growth

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USDC’s success is heavily dependent on its ability to attract developers and integrate into a growing number of blockchain projects, decentralized finance (DeFi) platforms, and institutional applications. The level of developer activity is a key indicator of the health and future growth of USDC’s ecosystem.

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1. Developer Engagement and Open-Source Projects:

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Circle has invested heavily in fostering a developer-friendly ecosystem. USDC is open-source, and Circle encourages developers to build on top of the stablecoin, integrating it into their blockchain projects, applications, and financial services. This open approach has helped USDC gain traction in the DeFi space, where it is widely used for liquidity provision, collateral, and settlement.

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Example: USDC has been integrated into major DeFi platforms like Compound, Aave, Uniswap, and MakerDAO, where developers can use it as collateral, liquidity, and a medium of exchange for various decentralized applications.

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2. Growth of the USDC Ecosystem:

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The ecosystem around USDC is growing rapidly, with more developers using the token across various blockchains such as Solana, Ethereum, Algorand, and Stellar. The flexibility of USDC to operate on multiple blockchain networks has enabled its adoption by developers looking for a stable and liquid asset for their decentralized projects.

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Example: The deployment of USDC on the Solana blockchain has opened up new avenues for developers seeking high throughput and low transaction fees, significantly boosting USDC’s use in applications like NFTs, DeFi, and gaming.

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3. Collaborations and Ecosystem Partnerships:

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Circle and the Centre Consortium have also fostered strategic partnerships with key players in the blockchain and financial sectors. These partnerships have been instrumental in expanding the developer ecosystem for USDC and increasing its adoption across industries.

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Example: Circle’s partnership with Cross River Bank and financial institutions has led to the increased integration of USDC into the traditional financial ecosystem, bringing it closer to mainstream adoption.

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Sources:

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https://www.coindesk.com/markets/2021/06/23/usdc-integration-with-defi-growing-at-a-rapid-pace/

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https://www.circle.com/en/about

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https://www.coindesk.com/markets/2021/10/05/usdc-adoption-accelerates-in-defi-as-crypto-market-explodes/

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C. Community Engagement and Social Sentiment

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Community engagement is a crucial factor in the success of any blockchain project, and USDC is no exception. The sentiment surrounding USDC in social media, forums, and developer communities plays a vital role in its adoption, as the perception of the project can directly impact its growth trajectory.

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1. Social Media and Community Channels:

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USDC has a strong presence across major social media platforms, including Twitter, Reddit, Discord, and Telegram, where users and developers interact, share knowledge, and discuss updates. Circle actively engages with the community to keep them informed about new features, regulatory developments, and partnerships related to USDC.

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Example: Circle frequently uses its Twitter account to engage with the USDC community, sharing updates on new integrations, partnerships, and educational content that helps users understand the benefits of using USDC.

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2. Community Feedback and Product Development:

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The community’s input helps shape the development of USDC. Circle listens to the feedback from users, developers, and other stakeholders to improve the product and adapt to market needs. By maintaining an open dialogue with the community, Circle ensures that USDC remains relevant and responsive to changing market dynamics.

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Example: User feedback from the DeFi community has influenced Circle’s decision to integrate USDC across various blockchain ecosystems, expanding its utility for decentralized lending, borrowing, and yield farming.

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3. Social Sentiment Analysis:

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Social sentiment around USDC is generally positive, as the stablecoin is seen as a trustworthy and compliant digital asset. Sentiment analysis through tools like Sentiment, LunarCrush, and CryptoMood shows that USDC’s reputation remains strong, especially in comparison to other stablecoins like Tether (USDT), which has faced controversies regarding its reserves.

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Example: Positive sentiment surrounding Circle’s transparent audits and regulatory compliance initiatives has contributed to USDC’s growing acceptance in institutional finance and DeFi.

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Sources:

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https://www.coindesk.com/markets/2021/06/01/circle-reaches-5-billion-in-market-cap-for-usdc-and-launches-cross-border-payments/

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https://www.coindesk.com/markets/2021/03/18/usdc-becomes-de-facto-stablecoin-for-ethereum-defi/

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https://www.coindesk.com/markets/2021/04/20/usdc-exceeds-10-billion-market-cap-and-developers-are-driving-its-growth/

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D. Ecosystem Support by External Entities

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1. USDC's Success: The Role of External Organizations and Partnerships

USD Coin (USDC) has achieved remarkable success not only through the efforts of Circle and the Centre Consortium but also via collaborations with external organizations, governments, and institutions. These partnerships are critical in establishing trust and credibility for USDC within the broader financial ecosystem.

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Partnerships with Financial Institutions

Circle’s strategic partnerships with financial institutions, such as Cross River Bank, have significantly expanded the use cases for USDC. These collaborations enable real-time settlements of payments, lending, and liquidity provisioning, effectively bridging traditional finance and blockchain technology.

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Example: Cross River Bank's Role

Cross River Bank plays a pivotal role in facilitating USDC’s entry into banking and payments. This partnership ensures the stablecoin’s legitimacy and provides access to mainstream financial services. By enabling real-time transactions, Cross River Bank enhances the operational efficiency of USDC in various financial applications.

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Expanding Use Cases through Strategic Collaborations

Circle has formed additional partnerships that further enhance USDC's utility across different sectors. Collaborations with companies like Binance and BVNK are instrumental in promoting USDC adoption globally.

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Binance Partnership

The partnership with Binance enables USDC to become more extensively available across Binance’s platform, which serves over 240 million users. This integration allows users to seamlessly access USDC for trading, saving, and payment applications. The collaboration aims to accelerate the adoption of USDC as a trusted digital dollar within the cryptocurrency ecosystem.

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CHAPTER 11: www.thestandard.io/blog/usd-coin-usdc-the-battle-for-stablecoin-sovereignty-in-2025-11