NewsletterAfter Market Turmoil, USDC Issuer Circle Comes Clean Hinting No Liquidity Risks
The cryptocurrency market has been going through a very rough period with several crypto firms reporting insolvencies and bankruptcy. A few hours ago, Voyager Digital announced its bankruptcy, becoming the second big crypto lender to default after Three Arrows Capital.
Amid all the market turmoil, Circle, the issuer of the USDC stablecoin has come out clean in an attempt to maintain transparency with users. Circle’s chief financial officer Jeremy Fox said that his company is different from other financial institutions that give false hopes of maintaining the security of user funds but turn their back in tough times.
Jeremy said that Circle’s business model with USDC is about minimizing risks not “taking or managing risks”. He added that Circle’s core focus is on keeping the underlying money sound – robust, trustworthy, safe.
Jeremy further explains how the company protects its USDC reserves with laws and regulations. He wrote:
USDC reserves are assets that belong to USDC holders, not Circle, and are wholly held in segregated accounts designated “for the benefit of USDC holders.” Circle is not allowed to use the USDC reserves for any other purpose. Unlike a bank or an exchange or an unregulated institution, we cannot lend them out, we cannot borrow against them, and we cannot use them to pay our bills.
Thus, in extreme cases such as bankruptcy, the USDA reserves remain redeemable at face value. Also, the USDC reserves are completely separate from Circle’s other operations.
Minimizing Risks With USDC Reserves
Circle CEO said that their goal with USDC reserves is to minimize risks to USDC holders. This includes counterparty risks, operational risks, market risks, and liquidity risks. Jeremy explained:
We hold approximately 80% of USDC reserves in U.S. Treasury bills with durations of 3 months or less. They have the deepest, most liquid market in the world, are price stable, and redemptions can settle on the same day. We hold approximately 20% of USDC reserves as cash within the U.S. banking system, with partners including Silvergate, Signature Bank, and New York Community Bank, among others.
He also said that circle continues to diversify banking partners and is also exploring ways to reduce bank risks.
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