Just-In: Circle Picks BNY As Custodian Of USDC Reserves

Financial infrastructure provider Circle Internet Financial said on Thursday it had picked Wall Street BNY Mellon as the primary custodian for the reserves backing its stablecoin USD Coin (USDC).

Circle is the creator and the main operator of USDC, which was launched in 2018. The token has since grown to be one of the most popular stablecoins, with over $52 billion in circulation by March 2022. USDC is the fifth-largest cryptocurrency by market capitalization, according to data from coinmarketcap.com.

Reserves maintain USDC stability

Circle’s vast reserves are used to maintain the token’s near 1:1 peg against the U.S. dollar. By placing them in the custody of a major bank, the firm increased the security of its reserves. Last year, the firm said that the reserves backing USDC consisted almost entirely of cash and U.S. government treasuries.

According to a report in July, Circle’s USDC reserves were worth about $22 billion.  Stablecoins need to be backed by stable, non-volatile assets to maintain their value. While the crypto space has seen alternatives to the classic stablecoin model, most notably Terra’s TerraUSD (UST), the top stablecoins are all backed by reserve-level assets.

Circle’s move today also increases its credibility ahead of a public listing this year. The firm had last month said it doubled the value of a deal to publicly list to $9 billion. The merger is with Concord, a special purpose acquisition firm, and is set to take effect this year.

Stablecoins in focus

Given their close relationship to fiat currencies, stablecoins have been a point of concern for regulators, who doubt the sustainability of such a model without the country-sized reserves needed to back the currency. Increasing adoption of stablecoins will require increasingly larger reserves.

The Bank of England recently said it viewed stablecoins in their current form as a threat to financial stability, and would move to bring them further under its regulatory purview.

Increased volatility in the first quarter of 2022 saw stablecoins balloon in popularity as a safe haven in crypto. Their fixed peg, and exposure to crypto also makes them ideal vehicles for facilitating crypto trades.

Tether (USDT), the world’s largest stablecoin by market capital, is consistently the most traded crypto due to its use in facilitating other crypto transactions.