Why did Circle's USDC cut ties with TRON: To protect itself?

I will walk my own Yangguan Road, and you will walk your own single-plank bridge.

Circle apparently believes that TRON is not "qualified" enough. On Wednesday, the mainstream stablecoin issuer announced that it would immediately stop minting USDC on the Layer 1 blockchain Tron, the first step of a "phased transition". USDC hopes to completely withdraw from the network created by Justin Sun , who faces potential legal challenges in the United States.

“As part of our risk management framework, Circle continually evaluates the suitability of all blockchains to support USDC,” Circle wrote in a statement. It added that the decision came after an “enterprise-wide” effort “to ensure USDC remains trusted, transparent, and secure.”

The move may come as a surprise to some in the community, given that Tron is known for its relatively low fees and fast settlement times, and is one of the pillars of the burgeoning stablecoin business.

Since at least 2021, there has been more Tether (USDT) on Tron than on Ethereum, due to the popularity of using Tron-based USDT to move funds between exchanges and growing usage by users in developing markets.

Circle didn’t reveal many details about its “enterprise-wide” review, which necessarily includes the company’s compliance and corporate divisions. It’s unclear, for example, whether this is a reactive move involving Tron-related security issues or a preemptive move to avoid potential legal issues involving Tron and its 33-year-old celebrity founder, Sun.

The split between Circle and Tron may be the latest sign of a growing divide between regulatory-compliant cryptocurrency companies (or at least those that appear compliance-friendly) and black/gray market crypto trading. For example, Binance, which was sued by the U.S. Department of Justice, delisted USDC a few years ago without clear explanation.

The lines between white, grey, and black market uses are not entirely clear and are constantly shifting. But signs of this are not uncommon, including Coinbase and Kraken ’s voluntary decisions to delist privacy coins, or the growing number of know-your-customer (KYC) requirements aimed at improving monitoring of cryptocurrency flows.

Sun is also a controversial figure himself. In March 2023, the U.S. Securities and Exchange Commission (SEC) accused Sun of securities fraud by fraudulently exaggerating TRON's trading volume and misleading investors through undisclosed celebrity endorsements - Sun said the charges were baseless. There is also his short-lived title of Grenada's ambassador to the WTO, which became a topic of gossip after the high-profile publicity.

The point is not Tron, though, Circle’s move may be more of a reflection of USDC’s strategy. Until last year, Circle’s stablecoin USDC’s growth had been accelerating and looked set to outpace its main competitor, USDT. But due to a combination of factors, including rising interest rates that benefited USDT more than USDC, and a volatile (albeit short-lived) decoupling event in early 2023, Circle was always a step behind.

Circle has prided itself on being a more regulated, compliant and transparent rival to Tether, which has been shrouded in conspiracy since its inception. Circle filed preliminary paperwork for a second IPO in January, meaning it is likely in active dialogue with the U.S. Securities and Exchange Commission (SEC) during its review process.

This is not the first step for Circle to cut ties with Tron, one of the 11 blockchain networks supported by USDC. In a letter last fall, in response to allegations that USDC was used for terrorist financing, Chief Strategy Officer Dante Disparte claimed that Circle terminated the accounts of Justin Sun and his company several months ago, in February 2023.

It is unclear why Circle cut ties with Sun at the time, but Disparte’s statement was in response to a Nov. 9 letter from the nonprofit ethics group Campaign for Accountability, which claimed that Circle had extensive ties to the Tron Foundation and cross-chain protocol SunSwap, and was accused of facilitating money laundering. That same month, Reuters reported that Tron had replaced Bitcoin as the platform of choice for terrorist organizations.

Tron is still the favorite chain for USDT. Currently, the value of USDT circulating on Tron exceeds 50 billion US dollars. Even without USDC, the Tron blockchain will not be greatly affected.

More importantly, USDC’s growing share of stablecoin trading volume has not affected Tether’s market dominance. Although USDC has less than $30 billion in circulation, its competitors are close to exceeding $100 billion in market capitalization.

Ultimately, as long as the majority of USDT remains on Tron, it will still play a core role in the stablecoin ecosystem.

Is Circle acting overly cautiously? Is it trying to save its reputation by dumping some of the relatively unsavory players in the crypto industry? How well does the world know Sun? Is this part of an overall shake-up in the crypto space, where certain “regulatory-forward” groups will work closely together, whether it makes sense or not?

After all, we have learned a lesson from convicted fraudster Sam Bankman-Fried (SBF), who deceived the world while pretending to be interested in compliance, and Circle’s cutting costs are acceptable: only $335 million of the $28 billion USDC currently in circulation is on the Tron network.