Circle Changes USDC Reserve Composition To Cash and Treasury Bonds

By Mansi Singh
August 24, 2021 Updated August 24, 2021
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Boston-based digital currency company Circle, with the support of Centre and Coinbase, has announced that it will change the composition of USDC reserves to cash and short-term US Treasury Bonds. 

Per Grant Thornton’s attestation, Circle expanded beyond cash and cash equivalents already in May 2021, However, witnessing the evolving regulatory landscape and scrutiny in the ecosystem, the company has provided a detailed breakdown of its reserve composition. Previously, the USD coin was backed 1:1 by dollar and cash made up over 60% of its entire reserves. The remaining 40% was backed by various short-term treasury bonds.

Circle’s call to abide by the regulations

Amid increased regulatory scrutiny from authorities, stablecoin issuers are instructed to regularly provide detailed breakdowns of their reserve composition. To tackle this evolving regulatory landscape, Circle also announced its USDC reserve composition on Sunday. However, the company’s announcement seemed more of a revelation. 

Coinbase and Center, a consortium formed by Circle noted that “with the community’s belief, commitment to transparency, and seeing the evolving regulatory environment, Circle will hold USDC reserves entirely in cash and short-term US Treasuries with the support of Center and Coinbase.” As per the company, the changes will be executed expeditiously and will be indicated in future attestations by Grant Thornton.

Why it is important

While cryptocurrency volatility has edged up a notch higher, more people are choosing to put their money in stablecoins. At present, they are utilized as the substitute for cash and are treated as a value store. To be noted, Tether is the largest stablecoin by market capitalization followed by USDC.

In July this year, Tether was scrutinized by the regulators because it did not have enough assets to support its peg to the greenback. Tether executives reported that only 2.9% of their reserves were in cash. And, the rest was made up of commercial paper. It is worth noting that commercial paper is a kind of unsecured short-term debt which is riskier than government bonds. All of this drew severe attention from regulators.

In the latest policy meeting, Federal Reserve Board officers asserted that stablecoins are a threat to financial stability and they need to be regulated. To this Jerome Powell, the Fed Chairman asserted that US CBDC may eliminate cryptocurrency and stablecoins from the grassroots.

Experts speculate Circle’s move is an attempt to abide by the regulatory authorities and a way to address the firm’s opaqueness in the fast-growing world of cryptocurrency.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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