CCIP x CCTP for Cross chain USDC transfers
Integration of Chainlink's and Circle's cross chain protocols for USDC transfers
On Tuesday (16th Jan), Chainlink announced the integration of its own cross chain protocol CCIP (Cross Chain Interoperability Protocol) with Circle’s cross chain protocol CCTP (Cross Chain Transfer Protocol) for the transfer of USDC across chains.
Although both of them are Cross Chain Protocols, they are distinctive to each other hence the collaboration of the two brings synergy to the development and adoption of USDC.
What is CCTP
CCTP is Circle’s standardised bridging protocol for its own Stablecoin USDC which can be embedded within dapps, wallets or bridges. It enables native USDC transfer across supported chains by burning and minting the token.
CCTP currently supports 7 chains: Arbitrum, Avalanche, Base, Ethereum, Noble, Optimism and Polygon PoS.
Pros of using CCTP:
1. Secure (mints and burns USDC natively so it does not require synthetic tokens which are more prone to exploits)
2. Efficient (mints and burns instantaneously and does not require locking and processing like most lock and mint bridges)
3. Ease of use (users can utilise CCTP via wallets that have integrated it which is more user friendly than using traditional bridges)
What is CCIP
CCIP is Chainlink’s standardised protocol that enable data and assets transfer between blockchains. CCIP achieves this by allowing Arbitrary messaging and Simple Token Transfer,
CCIP is currently on 4 chains: Ethereum, Avalanche, Optimism and Polygon.
Pros of using CCIP:
1. Secure (heavily audited codebase and proven track record of Chainlink)
2. Rate Limit (users can set a cap on transfer amount over a period of time)
2. High Composability (easy to use in creating new applications)
Decline in USDC
As of today the Marketcap of USDC is sitting at 26 billion, which is only about half of that when its Marketcap peaked in June 2022 at 56 billion.
The substantial decline was due to a combination of events and market conditions last year. One major headwind for USDC last year was the depegging event that happened amidst the collapse of Silicon Valley Bank (SVB), as Circle was revealed to have over 3 billion exposure (around 8%) of its reserves held in SVB.
Apart from that, high interest rate has also made holding Stablecoins more costly compared to other financial instruments (ie. forgoing 4-5% safe return by parking cash in USDC).
Closing Thoughts
Looking ahead, Defi protocols built with CCIP will be able to access one of the most liquid Stablecoins and utilise it across multi chains. This will likely unwrap new use cases for USDC, whether its for payments, cross chain transfers or Defi interactions. For instance, with the aid of CCTP, a user could deposit USDC into a lending protocol on one blockchain and then invest in a protocol on another blockchain, allowing the user to maximise yields across different chains.
The integration of these two market leaders for the development for USDC cross chain transfer could endow USDC a first mover advantage among other major Stablecoins as both protocols already have notable partnerships with well established institutions and projects in Web2 and Web3 such as Swift, Avalanche, Wormhole, dydx, Aave etc.
Furthermore, Circle is currently exploring the possibility to go for public listing in 2024. The extent to which USDC can regain its market dominance remains to be seen. However, given its expanding influence across different blockchain ecosystems, USDC will likely be remaining to be a significant player in the Stablecoin landscape.