Circle, the company behind the US Dollar Coin (USDC), has developed a new mainnet protocol that enables users to transfer USDC between Ethereum and Avalanche without the need for bridges. The Cross-Chain Transfer Protocol (CCTP) transfers USDC coins by destroying them and issuing new ones on the receiving network, which can be redeemed for bank deposits directly via Circle or its partners. Circle expects the protocol to solve the problem of “fragmentation” in the Web3 ecosystem, where there are many unofficial versions of USDC on various networks, making the token less confusing to use. Many of the largest cross-chain protocols, including Celer, Hyperlane, LayerZero, LI.FI, MetaMask, and Wormhole, have pledged to use CCTP in the future.
According to Joao Reginatto, Circle’s vice president of product, the new protocol will help improve liquidity and capital efficiency in decentralized finance. USDC is a fiat-backed stablecoin issued by Circle, with each token being backed dollar-for-dollar in its reserves. Users can mint USDC by opening an account and depositing cash via Circle or one of its partners, such as Coinbase. USDC can be received on several networks, including Ethereum, Avalanche, Stellar, and Polkadot.
The development of the CCTP is significant because users have lost billions of dollars worth of USDC and other cryptocurrencies due to bridge hacks over the past few years. Hackers have figured out how to remove locked coins from bridge contracts, leaving their copies on the receiving network with no backing. This has left developers wondering how to secure bridges for future use as digital assets become more mainstream.
Circle’s decision to create the CCTP follows the collaboration between Circle and Visa, which allows Visa to enable USDC payments. The partnership is part of Visa’s recent expansion of crypto capabilities that enable its customers to purchase, custody, or trade digital assets. According to Cuy Sheffield, Visa’s head of crypto, USDC is one of the fastest-growing stablecoins and ranks in the top 10 cryptocurrencies by market cap. The partnership with Circle will allow Visa to help more people gain access to stablecoins, making it easier to move money around the world. Sheffield added that Visa’s ultimate goal is to enable payments in any currency, including fiat currencies, cryptocurrencies, and stablecoins.
One of the main advantages of stablecoins like USDC is that they offer stability by pegging their value to a fiat currency. This makes them an attractive option for people looking to avoid the volatility associated with cryptocurrencies like Bitcoin. Moreover, stablecoins enable users to carry out transactions on the blockchain without having to go through a traditional financial institution. This has the potential to reduce transaction fees and cut down on the time taken to execute transactions.
In conclusion, Circle’s creation of the Cross-Chain Transfer Protocol is an essential step towards solving the problems associated with fragmented Web3 ecosystems. The protocol will make it easier for users to transact with USDC on different networks while ensuring that the coins are secure. This will instill greater confidence in the use of stablecoins and encourage their adoption, potentially driving the growth of the cryptocurrency market.