Coinbase, the largest crypto exchange in the US had a long-running advertisement on its platform regarding the second-largest stablecoin USDC. The advertisement promised every dollar paid to investors would be used to back the USDC with $1 “in a bank account.” The Coinbase partnership has proven fruitful for the stablecoin as it managed to become the second-largest stablecoin after USDT.
Circle, the issuer of USDC stablecoin released the first reserve review report this July which revealed only 61% of USDC circulating supply is backed cash or cash equivalents against the promise of 100% US Dollar backing. The remaining supply is backed by commercial paper, corporate bonds, and other assets, which are not of stable value and might fluctuate as per market conditions. This could brew trouble for the crypto exchange if regulators decide to act against it.
“There’s a material difference and a huge amount of evidence that something backed by dollars held in a bank account is different than something backed by things like U.S. Treasuries or corporate paper.” Columbia Law School lecturer said.
Coinbase went public in April this year with a record valuation on its debut, however, the USDC advertisement can come back to haunt it.
Coinbase Could Face Potential Investigation for “Unfair or deceptive acts or practices.”
A Bloomberg report pointed out that the content of the Coinbase website describing USDC changed after being contacted by the organization.
“From December 2018, the earliest saved page available from the Internet Archive, to Monday when Bloomberg called, Coinbase on its website described USD Coin as backed by dollars “held in a bank account.” A more in-depth help page about the coin said it was “100% collateralized by a corresponding USD held in bank accounts of the issuer.”
USDC issuer Circle has also revealed that it intended to become a digital bank in the US. While the company has promised to make its reserves more transparent promising to upload reserve data on-chain. However, the latest discovery about the USDC reserves could potentially brew trouble for the stablecoin issuer and Coinbase.
As I shared just over a week ago, we are expanding our transparency on USDC Reserves. You can find the expanded table of reserves assets in our May attestation report: https://t.co/dYCFnnxG82
— Jeremy Allaire (@jerallaire) July 20, 2021
The US lawmakers have already called for regulations around the stablecoin market pointing towards the lack of disclosures regarding their reserves being a key concern. Earlier, New York Attorney General had filed a lawsuit against Tether in 2018 for lying about USDT reserves, the case was settled this year with a multi-million fine.