USD Coin Whitepaper

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Whitepaper Document Version 2.0 May 2018

CONTENTS 1. Executive Summary 3 3. The CENTRE Team and Organization 19 1.1 The CENTRE Vision 4 3.1 The CENTRE Organization 20 1.2 Global Payment Use Cases 5 3.2 Circle Corporate Background 20 1.3 Crypto Exchange Use Cases 6 3.2.1 Leadership, Investors, and Directors 20 1.4 Addressing the Challenges of 3.2.2 Circle Products as Catalysts for CENTRE Adoption 21 Crypto Assets and Public Blockchains 7 3.2.3 Regulatory and Licensing Portfolio 22 1.5 Service Providers: Compliance, Identity, Fraud, Risk 8 3.2.4 Technology and IP Contributions 22 1.6 Governance and the CENTRE Organization 8 3.3 Organizational Structure and Advisors 22 2. Technology and Network 9 4. Additional Information and Updates 22 2.1 Stablecoin Minting and Redemption Sequences 10 2.2. Wallet-to-Wallet Transaction Sequence 11 5. Glossary 23 2.3 Merchant Payment Sequence 12 2.4 Crypto Asset Cross-Blockchain Sequence 13 2.5 Existing Technology 13 2.6 CENTRE Nodes 14 2.7 Technology Implementation Notes 15 2.7.1 Stablecoin Design 15 2.7.2 State Channel Transaction Management 15 2.7.3 Chaining State Channels 17 2.7.4 Node Modules 17

1 Executive Summary

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 We live in a world 1.1 The CENTRE Vision of open, connected, The open internet -- a global, distributed network of computers that share common open software global, free protocols -- has enabled billions of humans to connect and share information instantly, securely and with communication and zero consumer cost. The implications for the world information sharing. have been profound, and are still unfolding. The invention of cryptographic assets and blockchain- based computing and data sharing have ushered in the next major era of the open internet. Just as HTTPS, SMTP and SIP allowed for free information sharing and communications, crypto assets and blockchain technology will allow humans to exchange value and transact with one another in the same way: instantly, globally, securely and at low cost. An open internet of value exchange can transform and integrate the world more deeply, eventually eliminating artificial economic borders and enabling a more efficient and inclusive global marketplace that connects every person on the planet. The future of the global economy is open, shared, inclusive, far more evenly distributed, and powerful not only for a few chosen gatekeepers, but for all who will connect. CENTRE was born out of a desire to realize this vision. CENTR E | 4

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 CENTRE consists of price-stable crypto assets, network where they are provided by a mixture of banks, mobile protocols, and business rules which were implemented carriers, and technology companies. Each purports in early form over the past several years by Circle, to make consumer payments more seamless. Yet where the existing technology supports significant nearly all of these exist as thin shims of software active daily transaction volume. CENTRE plans to built on top of the legacy banking and card network create a network scheme to manage the creation, payment system. Each one is siloed and proprietary. redemption, and flow of these assets under a new They live in walled gardens, to borrow from the organization independent and separate from Circle. internet 1.0 era of online services. While we can In addition to governing and auditing network freely exchange information and content, and freely membership, CENTRE plans to provide technology communicate in open and global ways, money and to address price volatility and transaction scalability payments remain locked in the old closed world silos. challenges on top of existing public blockchain infrastructure. Specifically, CENTRE plans to provide: • A mechanism for issuing members to mint and burn/redeem asset-backed fiat tokens, or “stablecoins,” to address price volatility; • Protocols to enable global stablecoin transaction interoperability on public blockchains using state channels for increased throughput and scalability; • Network membership rules and smart contracts to govern, audit, and manage the licensed network participants that mint, transact, and redeem stablecoins. CENTRE is designed to provide a solution and new While Circle will become a licensed member of the incentives for connecting the world’s disparate CENTRE network, the network scheme and crypto digital wallets: a network scheme for fiat token asset technology will evolve under a new independent stablecoins that will allow money to flow between entity, an organization which will govern and further wallets the same way information moves between develop the CENTRE protocols separately from Circle. web browsers and servers, email between mail This document describes CENTRE, the problems it services, text messages between SMS providers. is designed to solve, how it is designed to operate, CENTRE answers the question “I can instantly text and how it should be managed. To clarify vocabulary, someone who uses a different mobile carrier than a glossary of key terms is provided as an appendix. I do, and I don’t pay money to email someone who uses a different email service than I do, so why can’t I use Alipay to pay someone who uses 1.2 Global Payment Use Cases Square, to pay someone who uses Paytm in India, Over the past half-decade, mobile-based digital wallets to pay someone who uses Facebook Messenger have emerged all around the world. These applications -- instantly, for free, anywhere in the world?” allow people to make person-to-person and person-to- Sharing content is free for consumers globally and is merchant payments using their mobile phones. These interoperable and not locked into specific software mobile wallets have proliferated in every country, CENTR E | 5

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 programs or devices; so it will be with value, as 1.3 Crypto Exchange Use Cases money becomes another form of internet content. In addition to transactional use cases involving Businesses and organizations, either directly by global payments, stablecoins issued by CENTRE supporting CENTRE-endorsed stablecoins or network members also aim to address key use indirectly by working with merchant acquirers, will cases involving crypto asset exchange risk. be able to support direct payments from compatible digital wallets. Just as an individual can use her Crypto asset exchanges are online marketplaces web browser to browse the content of a business in which buyers and sellers come together to website, she will similarly be able to use any trade crypto assets such as bitcoin, ethereum, wallet she chooses to make payments to people and others. These crypto assets fluctuate in price and businesses who use other compliant wallets according to the market. Tokenized fiat money, anywhere in any currency instantly and safely. such as tokenized US dollars, does not fluctuate in value, but rather remains price-pegged to the value CENTRE provides solutions for wallets to exchange of its underlying backing asset (in this example, value using the same or different currencies. A the value of one tokenized US dollar is always payment from one wallet holding tokenized US intended to be priced at one US fiat dollar). Dollars can be sent to another holding Korean Won, with seamless and instant currency exchange. Of This makes price-stable tokens useful for providing course, payments can also be made between wallets fiat connectivity and for hedging risk on crypto in the same currency -- for example, a person using exchanges, particularly on those exchanges that Venmo could pay another person using Square do not provide traditional fiat on- and off-ramps Cash or Circle.1 CENTRE protocols aim to manage -- so long as the price truly is stable, and so long as exchange rate rules and contracts across different there are compliant protections around the minting stablecoin tokens both within and across currencies. and redemption of such tokens. A hypothetical investor may choose to protect himself from bitcoin’s fluctuating value by trading his bitcoin for US dollar tokens on a supporting exchange, and be certain that the value of those US dollar tokens will not fluctuate. Stablecoins also allow investment products (such as security and equity tokens) on crypto exchanges to be priced in fiat value rather than in cryptocurrency value. Tokens such as those designed to represent equity ownership, interest in funds, structured debt, loans, dividend rights, and other investment offerings benefit from stable price- pegging for both price and investment return. Finally and most simply, many exchanges do not offer any direct on- and off-ramp connectivity for fiat bank accounts. On these exchanges, 1 To the extent that real companies are used in examples contained in this document, it is for illustrative purposes only, and in no way indicates that such companies are participating or will participate in the CENTRE Network. CENTR E | 6

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 stablecoins pegged to fiat reserves can provide when compared to transacting in “tokenized the needed integration for basic trading activity fiat money” or fiat-pegged crypto assets. across multiple token types. Stablecoin gateways, CENTRE meets this challenge by providing a created and maintained by licensed and compliant stablecoin framework involving “real world” asset network members, become third-party fiat service reserves. Each stablecoin token corresponds to a real providers for fiat connectivity to these exchanges. world asset that is reserved by an issuing CENTRE CENTRE provides the smart contracts and the network member and verified and audited by CENTRE. governance that enables issuing network members For example, a network member such as Circle to mint such stablecoins for customers who might choose to provide a tokenized dollar and may then use them to manage risk exposure on tokenized euro, and back such tokens with a supporting crypto asset exchanges and to invest reserved dollar and euro, with CENTRE auditing in tokens that represent investment products. Circle to ensure compliance and solvency. In theory, another network member might tokenize 1.4 Addressing the Challenges of Crypto another asset, such as gold, and similarly back Assets and Public Blockchains that token with physical gold in reserve. Rules concerning limits, proofs, etc, would be enforced As underlying enablers of solutions to the by CENTRE on each issuing network member. aforementioned use cases, blockchain technology A second challenge with current technology is and crypto assets promise many benefits: a blockchain transaction throughput. Current public transparent distributed mechanism for managing blockchain implementations do not support high- trusted updates to shared data among parties volume performance, as every transaction is written who have varying degrees of trust between one to an underlying ledger and printing new blocks to another; and a transferable store of value that such ledgers currently involves relatively high latency. is not tied to the policy of an issuing sovereign, but rather value based on the processing power, CENTRE addresses this challenge by providing a work, stake, and markets that support it. protocol for wallets to transact at higher velocity using state channels. The initial and final settlement states, At the current time, however, existing public blockchain such as account balances, of an interaction between implementations and crypto assets struggle to fulfill two participating members is written to the relevant the vision in part due to three significant challenges: underlying blockchain, but intervening transactions price stability, transaction throughput, and risks due to are not written to the underlying chain and thus the lack of independent governance over standards executed at the speed of the internet. This allows and network participants (particularly those members for payments in tokenized fiat currencies but with offering trade capability and fiat on- and off-ramps). the speed, security, and auditability of blockchains. Firstly, price volatility: In order for global financial A third challenge with existing implementations is interoperability to function reliably and consistently, the lack of independent governance over stablecoin a price-stable medium of exchange and store of providers. An issuing institution must be independently value is desired. Transacting in currencies which audited for solvency and security, otherwise fluctuate with extreme volatility creates complexity the underlying asset cannot be independently and fragile settlement contracts, especially verified, and the price stability becomes tenuous. CENTR E | 7

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 This issue has arisen with previous attempts at to secure PII and reduce the risk of PII leakage fiat-asset-backed stablecoins in production. common to existing legacy payment networks. CENTRE addresses this issue through separation of the CENTRE organization from its issuing 1.6 Governance and the network members. CENTRE itself is not an issuing CENTRE Organization member or financial institution, but a network scheme manager and technology provider. CENTRE CENTRE software implementation is expected to be enforces compliance with network rules around managed by a new independent organization and membership and behavior in order to ensure entity created for this purpose. This organization aims stability, accountability, and consumer protection. to provide the support, governance, and ongoing R&D for the CENTRE open source software project. 1.5 Service Providers: Compliance, The organization also expects to offer optional Identity, Fraud, Risk certification to improve trust in stablecoin-issuing members and wallet implementations, certify CENTRE plans to offer a service provider regulatory compliance of members, audit asset mechanism to support trust and identity decisions, backing, and provide support and network operations rules for payment settlement and reversals, to ensure continuous operation of network nodes. and the secure exchange of KYC/AML-related The organization also aims to pursue business information to meet compliance obligations. development and support programs to usher new Providers of services for fraud detection, members into the network and commit engineering risk assessment, identity management, AML and support resources to work on the underlying monitoring, and other services on the network crypto infrastructure on which CENTRE is built. will be able to implement the CENTRE Service Network governance is expected to include Provider interface in order to participate in the distributed consensus and voting mechanisms network and earn fees for the services they that leverage a forthcoming CENTRE-specific provide to transacting network members. token, separate from fiat tokens, that is designed For example, when different wallet providers to facilitate such network decision-making. connect to one another using CENTRE, it is important that these participating wallets meet applicable compliance and regulatory requirements, which include relevant KYC and AML obligations. CENTRE’s service provider interface will allow providers to supply features that support KYC and AML information exchange while leveraging cryptography CENTR E | 8

2 Technology and Network

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 CENTRE enables 2.1 Stablecoin Minting and Redemption Sequences crypto exchanges and CENTRE contracts manage the minting wallets around the and the redemption/burning of stablecoins, which can be used for both the exchange world to interoperate. and wallet interoperability use cases. Customers who on-board through a stablecoin on-ramp, such as a web application created and By exchanging price-stable tokenized value using a maintained by a licensed CENTRE token-issuing standard protocol across blockchains and fiat rails, member, can transfer fiat funds into that CENTRE and it enables those wallets to leverage services for issuer’s account. The issuer then executes a series compliance, identity, and risk management via well- of commands with the CENTRE network to verify, defined interfaces for service providers which plug mint, and validate fiat tokens pegged to the value into the network. The technology provided by CENTRE of those deposited funds. The customer can then supports tokenized fiat money through asset-backed transfer those tokens elsewhere in order to use them. stablecoins, and enables high transaction throughput by employing optional state channel implementations. Redemption follows the reverse sequence: fiat tokens are burned when a customer visits an off-ramp such as This section describes this technology in more detail. a web application maintained by a licensed CENTRE issuing member. Upon successful verification and validation, funds from underlying fiat reserves would be transferred to the customer’s external bank. Consider this example: David is a trader on crypto exchanges, and he would like to purchase crypto assets on exchanges that do not provide direct fiat connectivity to his US bank CENTR E | 10

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 account, and he would also like to hedge his risk and Circle executes a transfer of underlying dollar exposure to the volatility of crypto assets on those reserves into David’s registered bank account. exchanges by maintaining some of his holdings in the The tokens are withdrawn from circulation, and form of US dollar tokens that do not fluctuate in value. either placed in reserve to service future requests, or David visits a web application created and maintained else burned/destroyed if the value of those tokens by Circle (David could also visit a web application surpasses the prefunded fiat buffer maintained by of any other token-issuing member of CENTRE, but Circle. This process is subject to authentication in this example he chooses Circle). David signs up and authorization, verification, validation, and for a customer account, which requires satisfaction compliance similarly to the deposit sequence. of KYC requirements, and then begins the deposit Note that access to stablecoins need not be in a process in order to turn his fiat dollars into tokenized dedicated web application as in this example, but US dollars. The deposit process requires David to could also occur in a wallet, exchange, banking portal, transfer US dollars from his bank account into the or other product created by a licensed, compliant, Circle account. David has a limit on the amount of token-issuing member of the CENTRE network. funds he may transfer (and thus the number of US dollar tokens he may acquire) in a given time period. 2.2 Wallet-to-Wallet Transaction Sequence Once David’s transfer settles, Circle interacts with the CENTRE can facilitate compliant, reliable, safe, CENTRE network to execute the process required high-speed transfers between individuals who use different wallet apps in shared as well as different to transmit US dollar tokens to David. These tokens currencies without requiring private business may be taken from existing reserves from Circle’s development negotiations or using private networks. buffer of pre-funded fiat assets to increase the speed of the process; if no such reserves are available, then Circle uses the CENTRE protocols to mint new tokens. David then receives the tokens, and the value of those tokens directly corresponds to the value of the funds he deposited into the system. David may transfer the US dollar tokens to an address in a wallet or on an exchange so that he may use them to support his trading activity. CENTRE maintains a blacklist of forbidden addresses in order to protect David and other network participants from known Consider this hypothetical example which bad actors and to support regulatory compliance. crosses apps as well as currencies: When David -- or one of David’s counterparties Mobile wallets Paytm in India and Vipps in the who may have acquired some of the US dollar Nordics could participate in the CENTRE network tokens -- wishes to redeem the tokens and and allow their customers to transfer rupees and withdraw the underlying fiat dollars, then the kronor even though the wallets themselves do process is executed in reverse: David returns to not integrate with one another directly and even the issuing web application (Circle in this example), though they do not share common fiat currencies. deposits the tokens into a wallet address made available to his account on that web application, CENTR E | 11

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 Behind the scenes, the Paytm wallet in this If the checks all pass, then the value can be transferred example could use CENTRE to issue price-stable atomically through the use of chained state channels. INR tokens and publish exchange rates between To complete this example: Vipps would then update that tokenized rupee and other tokenized fiat Alice’s app balance to deduct the appropriate currencies. Similarly, Vipps could issue price stable kronor, and Bob would see his Paytm rupee kronor NOK tokens and publish an exchange rate balance increased correspondingly. Vipps and between that stablecoin and other fiat tokens, Paytm settle asynchronously for a batch of their such as a kronor-to-rupee exchange rate. customers when the state channel is closed. Alice is a customer of Vipps in Norway, and wishes to send money from her Vipps wallet to Bob in India, 2.3 Merchant Payment Sequence who uses Paytm as his wallet. When Alice begins CENTRE also facilitates compliant, reliable, safe, her transaction, Vipps refers to its exchange rate high-speed transfers between an individual who uses between the kronor and rupee stablecoin tokens; a consumer wallet app and a merchant who uses if Alice accepts this rate, then the transaction will a point of sale app. The consumer wallet and the proceed. If Vipps had not had an exchange rate merchant point of sale software interact using the between these coins but Paytm did, then Vipps CENTRE standard. This is analogous to a web browser could also have surfaced that exchange rate instead, accessing a remote website using the HTTP protocol and sent kronor to Paytm, which in turn would have without resorting to use of a closed private network. converted it to rupees using that exchange rate. Consider the following cross-currency example: Next, Vipps and Paytm may perform any required Carol has a WeChat wallet holding a Chinese RMB identity checks, compliance requests, or risk stablecoin balance. She is traveling in the United assessments as part of the transaction approval States and wishes to buy a sandwich from Dave, process. These operations may optionally call on who is a merchant who uses a Square mobile point service providers who provide such offerings to the of sale app that accepts US dollar payments. CENTRE network in exchange for fees paid in tokens. In this example, Dave’s Square point of sale app For example, to continue the sequence in the Vipps- does not accept RMB or WeChat payments, and Paytm narrative: Vipps may have configured its WeChat has no direct integration with Square. CENTRE node to execute its own internal identity However, the payment could work seamlessly checks, while Paytm may have configured its between WeChat and Square, without a custom node to use a third party service which provides private integration between them, if Square and an identity verification service. Paytm and the WeChat supported the CENTRE standard protocols. company agreed to a price for this service, and In this example, WeChat and Square could facilitate Paytm can pay that price on a per API call basis a payment between their apps for Carol and Dave by by utilizing state channels and stablecoin token agreeing upon an exchange rate between the RMB balances. Other service providers such as those and USD tokens that each accepts for settlement. involving fraud detection or other risk assessment WeChat’s CENTRE node could surface an exchange may similarly be plugged into the sequence. rate from RMB tokens to USD tokens, and execute If any of the checks fail in this example, Paytm or Vipps a purchase of USD tokens using RMB tokens for can abort the transaction before transferring any value. Carol. The transfer would then involve sending the USD tokens to Square. As in the person-to-person CENTR E | 12

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 sequence above, the same service providers (for exchange supported CENTRE, then Frank could compliance, risk, identity, etc.) may also be called maintain a state channel with Poloniex. upon as part of the transaction approval logic. If Frank wishes to use his bitcoin wallet to send money Naturally, no exchange between stablecoin to Charlie, who as in the example above maintains tokens would be required if the node owners a US dollar balance in his mobile wallet, then Frank (WeChat and Square in this hypothetical example) can use his bitcoin wallet to do so since both Frank’s agreed upon another token for settlement. For and Charlie’s wallets interoperate via CENTRE, even example, if Square accepted RMB stablecoin though Frank does not hold any US dollar tokens. tokens directly, then that token could be used Frank’s connection is to Poloniex, which in this for the same transaction, and the amount of RMB example maintains a CENTRE node that supports US transferred would be dictated by Square’s RMB- dollar stablecoin tokens and BTC. Charlie’s mobile USD exchange rate rather than WeChat’s. wallet supports US dollar stablecoin tokens, but not More simply, consider this same-currency BTC. The Poloniex node publishes its exchange rate wallet interoperability example: between BTC and US dollar tokens (i.e., the current Charlie has a mobile wallet app which holds US dollar value of bitcoin). That rate is displayed to a balance in US dollars. He is in line behind Frank, and if he accepts, the transaction can proceed. Carol at Dave’s sandwich shop and when it Then, as in earlier examples, token-consuming service is his turn, Charlie uses his mobile wallet to providers may enter the sequence to offer compliance, pay into Dave’s Square point of sale app. fraud, identity, risk, or other services to Frank or Even though Charlie and Dave have apps by Charlie as required by the products they are using. competing companies, these apps can interoperate The transaction in this example executes through state because both support transfers of US dollar tokens. channels so Frank can be sure that Charlie received Using CENTRE, the apps achieve interoperability the transfer even though it crosses blockchains from and can seamlessly facilitate a payment based bitcoin to US dollar tokens (on the ethereum chain). on supporting a common open protocol. 2.5 Existing Technology 2.4 Crypto Asset Cross- CENTRE plans to bootstrap development of its Blockchain Sequence implementation by utilizing intellectual property CENTRE also plans to enable transactions across contributions as well as perpetual licensing, as blockchains and crypto assets, and can connect such appropriate, from Circle, where an early form of crypto assets to fiat-based accounts and wallets. these kinds of protocols is in production today. For example: The protocols, APIs, and business rules defining interactions between network participants Frank holds a bitcoin balance in Ledger, a hardware- represent a level of abstraction above any particular based wallet. If his wallet supports CENTRE, he can implementation of those rules. Existing web content open a state channel with other CENTRE nodes for protocols illustrate this relationship: HTTP defines a the purpose of routing bitcoin-based transactions vocabulary for requesting an HTML page, but does and transfers. For example, if the Poloniex crypto not require any specific technical implementation, operating system, or programming language for that CENTR E | 13

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 vocabulary. Similarly, the CENTRE protocols define tokens), and state channel contracts as an option a vocabulary and business rules but do not require for quickly transfering value on the network. a specific distributed ledger, language, runtime, or Wallet account providers, financial institutions, software operating system for implementing those rules. companies and other participants will begin to join The initial implementation of the CENTRE protocol the network by hosting one or more CENTRE nodes. exists at Circle, where it was built over the past several A node is intended to provide a years and has supported significant transaction network participant the ability to: volume in production across multiple fiat and crypto currencies. CENTRE plans to implement the protocols • Issue new fiat tokens, such as tokens to on top of Ethereum as a series of smart contracts represent US dollars, Euros, RMB, or other and ERC20 tokens. CENTRE plans to leverage the currency that a node owner can settle; existing implementation to accelerate development • Configure which fiat tokens to accept, or of a new implementation of the protocol. delegate the decision to a third party; • Publish rates for exchanging fiat tokens; 2.6 CENTRE Nodes • Configure trust levels as rules dictating which CENTRE intends to evolve the existing protocol other node owners and network participants implementation from Circle into a new software to trust, or to delegate the decision to a package that defines a CENTRE “node.” Initially, third party such as a payment network; a node is expected to consist of (1) a collection of • Exchange metadata about a transaction before smart contracts deployed on Ethereum, and (2) any value is transferred and deny/approve code that knows how to interact with Ethereum transactions based on the metadata; and those smart contracts. The smart contracts • Ensure that value transfers execute atomically include fiat token contracts (implemented as ERC20 and quickly through the use of state channels. CENTR E | 14

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 While the initial CENTRE node implementation (unlike liquidity sources for network users rather than the original Circle implementation of the protocols) presenting a single collateralization gateway point of is intended to operate on Ethereum, the use of state failure. This approach is distributed, though it does not channels allows the network to be implemented on purport to be -- or aim to be -- entirely decentralized. multiple blockchains and perform atomic transfers Further, CENTRE itself enforces membership across blockchains. Thus in the future, participants requirements related to audits/solvency, licensing and would not necessarily be limited to Ethereum and compliance, and capitalization thresholds and limits. new blockchains could be added to the network. This eliminates reliance on any one issuing member to provide these controls. CENTRE, as a technology 2.7 Technology Implementation Notes provider and network scheme, provides such governance and is incentivized to maintain compliance 2.7.1 STABLECOIN DESIGN and solvency from all its licensed issuing members. Four general approaches exist for a The interaction between a token-issuing member price-stable token strategy: and the CENTRE network is codified in a series • Fiat-collateralized: Fiat assets in reserves of smart contracts created and maintained by collateralize tokens and thus provide price stability CENTRE, along with a protocol and network policies by pegging token value to reserved fiat value; to facilitate such interactions. CENTRE does not maintain fiat asset reserves itself, and CENTRE is a • Crypto-collateralized: Crypto assets in reserves not a financial institution; likewise, issuing network collateralize tokens and provide price stability members do not control the fiat token contracts, pegged to the value of those reserved crypto assets; but rather leverage them as they interact with the • Algorithmic non-collateralized: Software economic CENTRE network. New issuing members must models aim to provide price stability without on-board into the CENTRE network, and new fiat relying on underlying collateralized assets; tokens join the scheme through that process. • Hybrid: A blend of the three The contracts created and maintained by CENTRE basic approaches above. are intended to be open source software, CENTRE aims to provide the first: a fiat-collateralized subject to ongoing global peer review as well approach. One unit of tokenized fiat currency is as formal security review, and evolved through backed by one unit of reserved fiat. More so than internal CENTRE engineering development the other approaches to stablecoin development, as well as through collaboration with open the fiat-collateralized approach requires meeting source developers around the world. firm traditional regulatory requirements, requires issuing members to have strong auditable reserve 2.7.2 STATE CHANNEL TRANSACTION capability for traditional backing assets (such MANAGEMENT as fiat banking relationships), and provides less To transfer tokens at higher throughput rates, as decentralization -- and it is also currently the most an option in addition to direct usage of Ethereum, robust approach in terms of price stability. CENTRE transactions can utilize the state channel pattern. Using this option, nodes exchange balance CENTRE addresses the centralization tradeoff by information in the form of tokens transferred envisioning a network of multiple token-issuing members, thus providing multiple reserves and CENTR E | 15

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 in state channels. This section describes how Thereafter, Alice and Bob can perform updates by state channels operate at a conceptual level. communicating between themselves: When Alice State channels are a way for two or more participants sends 50 euro tokens to Bob, she does so by to update shared state between them securely generating a new state, cryptographically signing it, without executing transactions on a distributed ledger, and sending it to Bob. If Bob agrees to the new state, except for creating and finalizing the state channel he signs it and sends it back to Alice. The new state on the ledger. State channels are similar to payment between them looks as follows: channels, but state channels can manage multiple types of shared state in addition to payment data. To create a state channel, the participants agree to an initial state and execute transactions on an underlying distributed ledger in order to lock in that state. Subsequent updates can be executed without executing any transactions on If Bob then sends 25 tokens back to Alice, he the ledger. Each update is simply a new state, generates a new state, signs it, sends it back to and each participant cryptographically signs the Alice, who signs it, producing another new state of: new state if it is valid. When the participants wish to close the channel, they can each execute a transaction saying they agree to the final state. For example, imagine Alice and Bob wish to create a state channel for payments. They each lock 100 US dollar tokens into a state channel contract on the ledger, for an initial state as follows: CENTR E | 16

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 When Alice and Bob wish to settle these payments, Further, the reputational impact of any party they do so by closing the channel. Alice executes attempting to cheat the network is recorded and a transaction reporting that she agrees to the final subsequently visible to other participants. state; Bob agrees, so he also executes a transaction agreeing to the final state. Since they agreed, the 2.7.3 CHAINING STATE CHANNELS state channel contract then sends the funds to each State channels can be chained to enable payments participant based on the final state it was given. In to additional parties. If Alice wishes to pay Carol, this example, Alice receives 75 euro tokens and Bob and both Alice and Carol have a channel with Bob receives 125. The net change of 25 tokens from Alice but not with each other directly, then the transfer to Bob is committed to the ledger. Any intermediate from Alice to Carol can flow through Bob and then state changes will never be committed to the ledger. on to Carol without requiring Alice and Carol to When one party wishes to close a channel, open a direct channel. To chain state channels in the state channel contract does not close this manner, the system must enforce assurance immediately on demand. Instead, a challenge that when Alice pays Bob, that Bob will in turn pay period commences in which the other Carol and that Bob cannot retain the funds himself. participants have a period of time to either: This is accomplished through the use of a hashed • Agree, in which case the channel is closed and time locked contract (HTLC), which makes executing the changes are committed immediately; the chained payment as secure as executing it through a normal direct state channel. A chain • Dispute the final state by submitting a state signed of states is established in which the funds will be by all parties with a higher sequence number; or released if and when the recipient can produce a • Do nothing, which will constitute agreement secret. The final recipient is then given the secret, once the challenge period expires. which they pass up the chain, and everybody in Imagine the scenario in which Bob wished the chain can use the secret to claim the funds. to “cheat” by broadcasting the earlier state In this example, Alice gives Bob a new state that which assigned him 150 tokens instead of 125 essentially states: “if you can produce the preimage tokens. That state was also signed by both that will produce this hash, then you can receive the Bob and Alice, so it is in some sense valid. funds.” Bob then produces a similar state with Carol. In this example, if Alice disagrees with the final state Alice then gives Carol the preimage. Carol uses that Bob submits, then she would have a chance that preimage to retrieve the funds from Bob, and to submit the later state (sequence 2), which was then Bob uses that to retrieve the funds from Alice. also signed by both parties; in this example, that Since the HTLC is enforced by the state channel, if would supersede Bob’s final state. Bob could then one party attempts to steal the funds then the other either agree or do nothing. He would be unable to party can broadcast a transaction with the HTLC and dispute since he does not have a later state signed the preimage, which will direct the funds to them. by both parties. This means that no participant 2.7.4 NODE MODULES can prevent another participant from closing the channel, and no one should be able to close the Interaction between internal node subsystems occurs channel except with the legitimate final state. through well-defined modules and API interfaces to CENTR E | 17

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 make replacing or extending parts of a CENTRE node CENTRE Management Module as easy as possible. Different network participants A module implementing APIs that node owners may wish to employ different internal technologies employ to control and administer a CENTRE node. (such as a relational database, key management, This includes support for initiating a value transfer, PII storage, etc.), so it is critical that CENTRE has a deploying a new token, and updating trust parameters pluggable means of supporting those requirements. for nodes and tokens, among other features. A preliminary, non-inclusive list of Exchange Rate Module planned modules is as follows: A module to manage what rates a node Distributed Ledger and Smart Contract Modules offers when trading between assets. A module and interface to manage and employ a Key Management Module distributed ledger and the necessary associated smart Modules to handle securely storing and contracts. Initially CENTRE provides a module that retrieving cryptographic keys for signing implements a module and interface for Ethereum. transactions and executing state updates. This smart contract module includes: Code that Identity, Risk, PII, Compliance, Authorization, and Service understands how to talk to an Ethereum node, Modules smart contracts for tokens and state channels to be Extensible modules employed for identity and deployed as needed, and code to interact with the account management, KYC/AML compliance, included smart contracts to enable value transfers. secure storage, authentication and authorization, Routing Modules risk scoring, and other services. A module to determine routing for negotiating transfers. CENTRE Protocol Module A module to implement APIs that CENTRE nodes use to communicate with one another. CENTR E | 18

3 CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 The CENTRE Team and Organization CENTR E | 19

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 While initially a wholly owned subsidiary of Circle, and a significant R&D function that continues to it is proposed that CENTRE operations and team build and improve the CENTRE software protocols. members are to be transferred to the CENTRE Software contributors are expected to include organization, a new entity which is to be created a growing community of third party developers in the coming months. The CENTRE organization from CENTRE network members as well as expects to operate independently, with entirely independent developers around the world. separate dedicated working capital, employees and technology development. Circle expects to 3.2 Circle Corporate Background act merely as a founding member and source of the original technology and IP, and as a production As the creators of the core CENTRE technology and user of CENTRE, as further detailed below. IP, and as the network’s founding member, Circle’s broader background and leadership is critical 3.1 The CENTRE Organization to CENTRE’s launch and initial development. The CENTRE organization aims to 3.2.1 LEADERSHIP, INVESTORS, AND DIRECTORS satisfy four key objectives: Circle’s senior management team brings highly • Provide R&D capability, support and maintenance seasoned leaders with decades of success in leading of the CENTRE open source software project. This companies in the Internet technology, online services includes managing the open source code repository and banking industries. Cofounders Jeremy Allaire and facilitating and supporting third party developer and Sean Neville have built multiple global public engagement, evangelism and code contributions. companies with products and platforms that have helped to transform software development, web • Provide the business development, governance content, online media, and core Internet infrastructure. and compliance functions for the CENTRE Network, including business development required to usher Sean and Jeremy are joined by seasoned executives new nodes into the network for consumer wallets, and a broad leadership team coming from companies merchants, payment acquirers, and others. including Goldman Sachs, Amazon, Square, Google, AirBnB, Expedia, eBay and Adobe, among others. • Provide optional certification testing, trust authority A unique combination of top Internet technologists services, compliance reviews, and due diligence and operators familiar with the complexities and programs to allow node owners to opt into proving, risks of global finance, the management team maintaining, and broadcasting high degrees of trust represents one of the most experienced and talented to satisfy legal obligations and to increase reputation firms in the global Internet Finance industry. and presence among other network participants. Circle is backed by by leading venture and • Contribute engineering and support services to the strategic investors including IDG Capital, one of underlying distributed ledger infrastructure (such the largest venture capital firms in China and early as Ethereum) on top of which CENTRE operates. investor in Tencent, Baidu and CreditEase; Breyer This vision sees CENTRE growing to become a Capital, founded by Jim Breyer, one of the leading significant global organization with business and VCs in the world and first investor in Facebook; operational professionals in all major markets around General Catalyst Partners, major investors in Snap, the world, a global compliance function that is Airbnb, Stripe, and Kayak. Strategic investors working closely with digital wallets in every region, CENTR E | 20

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 include Goldman Sachs, CICC Alpha, Baidu, Circle Pay is a global social payment app that enables WanXiang, CreditEase and EverBright Bank. customers to make payments instantly and without fees, including instant payments that cross currencies Circle’s board of directors includes, in addition to and borders. Circle Pay combines open, cross- Jeremy and Sean, veteran venture investors Jim currency transactions with delightful social messaging Breyer, Quan Zhou and David Orfao, who have helped behaviors -- conversations, media and payments. to build some of the most significant consumer, Internet, and technology companies in the United Circle Pay was built from the ground up on blockchain technology and specifically on the States and China. Independent Director Raj Date technology behind CENTRE. The company brings decades of experience in consumer finance envisions money and value transcending walled as a senior executive at Capital One and Deutsche gardens to become more inclusive and globe- Bank, and he was recruited by US Secretary of the spanning, nearly instant, secure, and enabling new Treasury Timothy Geithner and Senator Elizabeth forms of growth and innovation for businesses Warren to spearhead a new regulatory agency for and individuals. Charging a toll for payments will consumer financial protection. Independent Director disappear, opening up enormous opportunities for M. Michele Burns is a leading global financial global value exchange, including bringing several executive who was CFO of Delta Airlines, Mercer billion people into the global digital economy. and Marsh McClennan, and has served on the board Circle Trade operates the company’s crypto asset of directors of Walmart, Cisco, Goldman Sachs trading business, which today is one of the largest (where she chairs the risk committee) and Inbev. market makers and OTC liquidity providers in Independent director Alex Norstrom is a Spotify the world. Circle Trade directly trades over $2B executive who oversees the Spotify subscription per month in the marketplace, provides daily business unit and brings a strong background in liquidity to large natural buyers and sellers of growth and marketing in the consumer internet space. crypto, trades at high values (minimum of $500k USD), and acts as a liquidity provider and market maker on all mature crypto asset exchanges. Circle Invest, first released in the US in spring of 2018, is a mobile app that surfaces Circle Trade’s capabilities to retail consumers. Circle Invest simplifies crypto asset investment particularly for those new to the space. Circle Invest has zero commission 3.2.2 CIRCLE PRODUCTS AS CATALYSTS FOR fees, instant funds access, and a minimum of $1 CENTRE ADOPTION USD. Circle Invest will grow its features and expand With billions of dollars in transaction volume, global market availability over the course of 2018. millions of customers, and a growing global Poloniex is one of the world’s largest crypto asset footprint, Circle’s products can be major catalysts exchanges. Circle envisions Poloniex evolving into for broader CENTRE Network adoption. a robust multi-sided distributed marketplace that Circle currently operates four major product lines: can host tokens which represent everything of Circle Pay, Circle Trade, Circle Invest, and Poloniex. value: physical goods, fundraising and equity, real estate, creative productions such as works of art, CENTR E | 21

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 music and literature, service leases and time-based building seamless consumer payment experiences rentals, credit, futures, and more. Circle believes and using fiat currency on top of underlying that the contractual rules around exchange for blockchain settlement and integration layers are anything and everything will become increasingly core to CENTRE. Other technology innovations represented in distributed global software, rely on include systems and services for layering KYC and inconvertible distributed shared memory in the AML risk decisions into payment networks and form of distributed ledgers, and benefit from the transactions, and systems for providing instant liquidity services of global multidimensional marketplaces. and conversion between fiat and crypto assets. 3.2.3 REGULATORY AND LICENSING PORTFOLIO 3.3 Organizational Structure and Advisors The advent of cryptocurrency and blockchain technology represents the most significant The CENTRE organization will be seeded with technology breakthrough since the emergence of several key Circle employees who anticipate the commercial internet, and Circle has believed moving from Circle into CENTRE. This talent it is crucial to build strong relationships with includes individuals in engineering, operations, governments who are seeking to understand the business development, finance, and compliance. technology and ensure that markets can adopt The CENTRE organization will be supported by it while also addressing key risks to society, the a strong board of advisors with deep experience economy, and consumers. Because of this, Circle has in internet platforms, protocols and consumer focused on deep and high-quality engagement with products, enterprise development, open regulators since its inception, and holds the broadest source software, and also deep expertise in licensing of any crypto company in the world. cryptocurrency and blockchain technology. Circle is a registered Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN) of the US Treasury Department and holds money transmission (or equivalent) licenses in 4.0 The CENTRE 48 US states and territories. Circle is the first and currently one of only four companies to have been Organization granted a BitLicense from New York. Circle also holds an E-Money Issuer license from the Financial The CENTRE working group expects to update this Conduct Authority in the UK. These licenses paper periodically during the course of technical enable the company to offer fiat and crypto asset peer review, legal and compliance review, finance storage, currency exchange, and payment services and tax counsel, and during ongoing engineering in the United States, UK, and European Union. progress. 3.2.4 TECHNOLOGY AND IP CONTRIBUTIONS Major updates are expected to be reported Circle is contributing core technology and IP to on the CENTRE web site: http://centre.io. the CENTRE organization. This IP is the result of several years of technology development at Circle to support the consumer social payments and crypto asset trading businesses. Circle’s pioneering work in CENTR E | 22

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 5.0 Glossary Ethereum: An open source, public, blockchain- based distributed computing platform featuring smart contract scripting functionality. Anti-Money Laundering rules (AML): A set of Hashed TimeLock Contract (HTLC): A class of procedures, laws or regulations designed to stop the smart contracts that require that the receiver practice of generating income through illegal actions. of a payment either acknowledge receiving Application Programming Interface (API): A set of the payment prior to a deadline by generating routines, protocols, and tools for building software cryptographic proof of payment or forfeit the ability applications. An API specifies how software to claim the payment, returning it to the payer. components should interact. In general terms, it is IOU: A cryptographically-signed piece a set of clearly defined methods of communication of data acknowledging a debt. between various software components. Implementation: A specific realization of a protocol Bitcoin: A network in which encryption techniques or other software abstraction in the form of one are used to regulate the generation of units particular incarnation in particular software code. of currency and verify the transfer of funds Loosely speaking, a blueprint is to a house as a (when lowercase, the term also refers to the protocol specification is to an implementation. units of currency rather than the network). Know Your Customer (KYC): Rules and processes CENTRE: A protocol for digital wallet interoperability in which a business identifies and verifies the across currencies and borders, across diverse identity of its clients. The term is also used to software implementations, and across multiple refer to the bank and anti-money laundering blockchains, ledgers, and settlement rails. regulations which govern these activities. CENTRE Network: The connected network of CENTRE Node: A software package which operates nodes operated by participants such as wallet and manages network participation, including providers, service providers, and financial institutions. providing protocol and API implementations, Chained State Channels: A mechanism for allowing on behalf of a network participant. two state channels that are not connected directly Payment Channel: Specific to Bitcoin, a Micropayment to one another to connect securely indirectly using Channel or Payment Channel is a class of intermediary connections to other state channels. techniques designed to allow multiple transactions Circle: Circle Internet Financial is the company without committing all of those transactions to which created the initial implementation of the the blockchain. In a typical payment channel, only protocol, and which will help bootstrap CENTRE two transactions are added to the blockchain development with IP contributions and licensing. but an unlimited or nearly unlimited number of payments can be made between the participants. Crypto Asset: A cryptographic unit of data and Payment Channels are a class of State Channels. software code which has value as a tradeable asset. CENTR E | 23

CEN TRE WHI TEPAP ER | D OCU MENT VER S ION 2.0 Protocol: A set of rules and guidelines for Stablecoin: A term used to describe a crypto communication. Rules are defined for each step asset that is pegged to underlying reserved and process during communication between two assets and/or managed by software algorithms or more nodes, and nodes must follow these rules in order to enforce price stability. to transmit data successfully. A single protocol may State Channel: A discussion channel between be realized in diverse implementations in varying network participants capable of updating programming languages and runtimes across internal data (state) without requiring that every diverse blockchains or other infrastructure. such data change be printed to an underlying Service Provider: A CENTRE network participant blockchain. A superclass of Payment Channels. that provides services to the network to support Token: A smart contract that is employed to gain financial transactions. In exchange for fees paid in access to and use of the network, and which tokens, service providers may offer compliance, identifies the holder as a network participant, KYC, identity, data storage, fraud detection, or other and which implicitly accrues value in proportion services of interest to other network participants. to the usefulness of the network it unlocks. Settlement: Delivery of an obligation in Transaction: In CENTRE, a transaction is a transfer satisfaction of an IOU which may have been of an IOU from one network participant to another. transacted between network members. Trust Level: A numeric indicator of a network Smart Contract: Computer protocols intended participant’s trust and certification level which to facilitate, verify, or enforce the negotiation is determined by that participant’s licensing or performance of an agreement. profile as well as its behavior over time. CENTR E | 24