BREAKINGVIEWS-Stablecoins face a choice: fraud, or friends

By Stephen Gandel

NEW YORK, Sept 26 (Reuters Breakingviews) - Cryptocurrency peddlers have long had friends in low places. Taking digital currency mainstream might mean ditching them. Take Circle Internet Group CRCL.N, the issuer of USDC, a dollar-pegged token known as a stablecoin. It’s mulling a plan to make transactions reversible in order to fight fraud, the Financial Times reported on Thursday. Such safeguards run counter to the anarchic digital ethos, an uneasy tension that will increasingly need to be resolved.

Circle’s initial public offering in June was a hit, its shares soaring 168% on its debut day of trading. Rival and number-one stablecoin issuer Tether is seeking fundraising at an eye-popping valuation of $500 billion, Bloomberg reported. Both are riding a wave of enthusiasm that the technology could displace everything from wire transfers to card payment networks. Analysts at Citi foresee stablecoins reaching $4 trillion in assets by 2030.

Getting there requires convincing mainstream pillars of the economy – that is, big retailers like Walmart – to speed adoption. In turn, that requires basic creature comforts, like being able to refund dodgy transactions. It’s more controversial than it sounds: the finality of crypto transfers is the bedrock of the decentralized ethos driving initial adoption. Even BlackRock chief Larry Fink described bitcoin as a “currency of fear,” appealing to those scared of overbearing, centralized control or instability.

Such opacity also makes crypto a favorite of criminals. Losses from cryptocurrency fraud reached $9.3 billion in 2024, according to the Federal Bureau of Investigation, up 66% year-over-year. Circle’s pitch has always been about tidying this up. Unlike Tether, it complies with the recent U.S. crypto legislation known as the Genius Act. Appealing to authority makes sense: for the average consumer, dollar-pegged tokens offer few advantages over low-cost debit cards. For retailers, though, they could allow direct payment processing, bypassing the fees of traditional networks run by Visa V.N or Mastercard MA.N.

Granted, Circle’s under-development new blockchain – the ledger on which USDC transfers are inscribed – will still be final and irreversible, the company says. A white paper released earlier this year explains how smart contracts could enable refunds while keeping everything mostly decentralized. Yet there are constant tweaks here that push closer and closer to stablecoins just being another part of traditional finance, layering on elements of corporate control. Given Circle’s valuation multiple stands at a mighty 176 times trailing earnings, that’s probably smart: investors are banking on growth that will be difficult to feed otherwise. It will be an uneasy departure, though, from the anarchic hype that gave the industry its start.

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CONTEXT NEWS

The Financial Times reported on September 25 that Circle Internet Group is considering enabling "reversible transactions" that will allow users to receive refunds in cases of fraud.

Citigroup in a September 24 report predicted that stablecoins like Circle's dollar-pegged USDC could grow to $4 trillion in assets by 2030, supporting $100 trillion in annual transactions.