Mastercard has named the first stablecoin and a handful of partner companies that will help cryptocurrency holders spend their digital assets at merchants that accept the payment giant’s cards.
In the pilot announced Tuesday, Circle’s USDC will serve as a bridge between the cryptocurrency in consumers’ digital wallets and the fiat currency paid to merchants. USDC is a digital token that almost always trades at $1 because the issuer promises to redeem it 1-for-1 with greenbacks at any time.
While it might sound like adding an extra step, swapping a cryptocurrency for a stablecoin and then exchanging the stablecoin for dollars can be quicker or simpler than going directly from crypto to fiat. For example, some cryptos cannot be easily traded on an exchange for dollars but can be for USDC. Adding this way station will assist cryptocurrency firms that want to offer Mastercard-branded products to their customers, the company said.
“Today not all crypto companies have the foundational infrastructure to convert cryptocurrency to traditional fiat currency, and we’re making it easier,” said Raj Dhamodharan, Mastercard’s executive vice president of digital asset and blockchain products, in a press release.
The announcement, five months after Mastercard said it planned to bring select stablecoins into its network, was framed as a step toward that eventual goal.
The plan comes as stablecoins face growing scrutiny among regulators and lawmakers. On Monday the U.S. President’s Working Group for Financial Markets promised to publish recommendations for stablecoin regulations in the coming months, after the top federal financial regulators discussed use cases and potential risks.
This followed remarks from Federal Reserve officials signaling various levels of concern over the past few months, with Boston Fed President Eric Rosengren in particular singling out Tether’s USDT stablecoin, the market leader, as a potential “challenge” to financial stability.
Asked how Mastercard is verifying that stablecoins settled through the program are fully backed by reserves, Mastercard spokesperson Katie Priebe referred CoinDesk to the foundational principles the company outlined in February.
Payment companies are continuing to trial stablecoins like USDC for transactions. Visa announced it had conducted a small USDC transaction earlier this year.
Work in progress
Aside from Circle, Evolve Bank & Trust and Paxos Trust Co. are involved in the pilot, though their roles are not clear. Mastercard said it is “in discussions” with Evolve and Metropolitan Commercial Bank to issue crypto cards. While Paxos has its own collateralized stablecoin, Paxos standard, Priebe said that for now, USDC is the only stablecoin involved.
“While the final choice of stablecoin is left to the issuer and the wallet provider, the stablecoin must conform to our foundational principles on stablecoin enablement,” she said.
The company is also in talks with long-running crypto startups Uphold and BitPay to provide digital wallet technology and with three firms from the traditional card business to handle back-end functions, Mastercard said.
Priebe said the pilot should go live soon, though a specific date has yet to be determined.
The growing scrutiny of stablecoins reflects in part their torrid growth: Circle’s USDC has jumped sixfold since the beginning of the year, growing from around $4 billion on Jan. 1 to over $25 billion as of press time, according to CoinGecko. Paxos standard, while down from its peak market capitalization of $1.4 billion in May, has nonetheless grown as well over that same time period.
Tether is the notable outlier; it hasn’t issued any new tokens since May.