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.
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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.
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