- Circle Internet Financial has launched the Perimeter Protocol, an open-source smart contract codebase for creating tokenized credit markets.
- The protocol supports various credit-related uses, such as invoice factoring, payroll advances, quick settlement for merchants, and credit trading for big investors.
- Circle has made the white paper for Perimeter Protocol publicly accessible, allowing developers to use it freely to create their own financial products.
Circle Internet Financial, known for issuing stablecoins, has launched the Perimeter Protocol. This smart contract codebase is meant to be an open-source foundation for creating tokenized credit markets. In simpler terms, it’s a tool that allows developers to build digital credit systems. Circle has outlined that Perimeter Protocol is versatile and can support various credit-related uses, such as invoice factoring, payroll advances, quick settlement for merchants, and credit trading for big investors.
Circle has made the white paper for Perimeter Protocol publicly accessible, which means that developers can use the codebase freely to create their own financial products. This launch is also significant because it marks the establishment of Circle Research, a new division within the company dedicated to open-source development.
This move by Circle aligns with the broader trend of bringing traditional financial concepts, like credit, into the realm of blockchain-based applications. This trend, often called the “tokenization of real-world assets,” has the potential to overhaul the financial system by making it more efficient and transparent. According to a report by Bank of America, this market for tokenized assets could potentially grow to $5 trillion in the next five years.
Stablecoins, like the $26 billion USDC and the euro-pegged token EURC, play a vital role in settling transactions within blockchain-based lending markets. Circle’s goal is to facilitate the process of tokenization and the development of decentralized finance (DeFi) credit platforms using its stablecoins.
Circle has emphasized the need to ensure secure on-chain credit through reliable standards and underwriting, particularly to make it accessible to newcomers in these markets.
OpenTrade, an institutional DeFi platform, is among the first to adopt Circle’s Perimeter Protocol. They have introduced a tokenized U.S. Treasury pool, which is essentially a way for investors to earn yields from U.S. Treasury bills on the blockchain.
OpenTrade’s offering is available to various entities, including accredited individual investors, regulated institutions, companies, funds, and decentralized autonomous organizations (DAOs). In addition, other companies can integrate OpenTrade’s pool into their own offerings. Initial distribution partners and liquidity providers for OpenTrade include Enigma Securities, WOO X, Resonate, Kyber Network, and Sino Global Capital, with support from UK-based structured finance firm Five Sigma.
This development fits into the broader trend of bringing traditional financial assets, such as government bonds and credit, onto the blockchain, often referred to as the “tokenization of real-world assets” (RWA). Major banks are also exploring blockchain technology for these purposes.
U.S. Treasuries are an attractive asset for tokenization due to their reliability and low risk. Data shows that the tokenized treasuries market has grown significantly this year, reaching a total value of $668 million, with asset management firm Franklin Templeton being a prominent player.
OpenTrade’s tokenized U.S. Treasury pool leverages Circle’s Perimeter Protocol and is backed by the USDC stablecoin.
In the future, OpenTrade has plans to introduce a range of on-chain yield products, including investment-grade commercial paper and supply chain financing. The co-founders of OpenTrade, Dave Sutter and Jeff Handler, see significant opportunities in using blockchain for trade financing, citing an unmet financing demand of $2.5 trillion, as reported by the Asian Development Bank.