Key Takeaways:

• Removing risky shortcuts: By using USCD directly, users no longer need a “bridge” (a middleman tool), which are famous for being a “weak link” that hackers target.
• More stability: Polymarket users now transact with a digital dollar (USDC) that follows strict government rules. For every digital dollar you own on the app, the company (Circle) keeps a real U.S. dollar or safe asset in the bank to back it.
• Safer but not risk-free: You are still trusting a private company to stay in business and making sure their digital dollar stays exactly at its $1.00 value. 

Crypto-based prediction market Polymarket is teaming with Circle, the issuer of stablecoin USDC. The partnership is aimed to help Polymarket move away from USDC.e, a synthetic version of USDC, to the native USDC token on the Ethereum layer-2 solution, Polygon.

This move will help the prediction platform users move away from the ‘bridged’ version of the stablecoin, making trading faster and more secure for those who use the site to bet on everything from elections to pop culture.

Why the move from bridged to native USDC?

Currently, Polymarket uses a bridged version of Circle’s USDC stablecoin. A bridge token, also referred to as a wrapped token, represents a token from another blockchain network in a 1:1 ratio.

For Polymarket users, they rely on either acquiring USDC.e from exchanges or sending their native USDC from chains like Ethereum through a bridge. They need to send USDC to a dedicated protocol, which will lock up the tokens and then print a representation on Polygon, the USDC.e.

While this has worked for years, it created a major vulnerability. Bridges are a weak link in crypto. If a bridge is hacked, the claim checks (USDC.e) could lose their value. Phishing is also a possibility, where fake bridges steal the original token.

Unlike the real USDC issued by Circle, the USDC.e is not backed by the issuer and therefore, not redeemable.

Direct use of USDC posses less risks

By removing the middleman (the bridge), Polymarket is significantly lowering the risk of a bridge’s technical failure or hack affecting user funds. By moving to native USDC, users are no longer holding a proxy coin, but the real USDC, backed by Circle. They are holding an asset issued directly by Circle that is fully reserved and always redeemable 1:1 for U.S. dollars.

Native USDC allows for faster on-chain settlements and removes the withdrawal delays often associated with moving bridged assets back to the Ethereum mainnet.

Regulated stablecoins are better, but not ‘risk-free’

Circle is a regulated firm that issues the USDC stablecoin. This means it is bound by regulations to have a 1:1 ratio of assets like cash and other reserves to back its issued coins. This makes it reliable over other non-regulated ones.

However, USDC is still not without risks. As a centralized issuer, it has the power to freeze wallets during audits or legal disputes, potentially locking your funds. You also face counterparty risk, where if the issuer collapses financially or there is extreme volatility, the stablecoin can depeg, meaning it can lose its value and cause significant losses.

Glossary of Terms: 

• Stablecoin: A digital token that maintains its value and doesn’t fluctuate. 
• Wrapped/bridged token: A synthetic token that is pegged to another token, usually on another blockchain network. 
• Layer-2: A blockchain built on top of another network to cater to faster and cheaper transactions.