USDC Stablecoin-Issuer Circle in ‘Strongest Financial Position’ Ever

Circle, the company behind USDC, the world’s second-largest stablecoin, is in its “strongest financial position” ever, according to CEO Jeremy Allaire.

It comes as stablecoins have come under increased scrutiny following the collapse of Terra’s UST stablecoin in May, with observers calling for greater transparency in the assets backing the dollar-pegged cryptocurrencies.

Allaire said Circle has strong buffers of capital and liquidity, soothing market concerns the company was hemorrhaging millions of dollars in revenue paying some banks a certain rate to hold their assets. There has also been some worry over the firm’s lending practices.

“There is some obvious confusion between USDC reserves, which are regulated, examined and transparent… and USDC that itself is used in lending markets, away from Circle,” Allaire tweeted on Saturday.

“But the essence is that because Circle Yield is regulated, over-collateralized, offered as a security to only accredited investors, and has a very conservative UW approach, we have had zero issues,” he explained, adding:

“Circle is in the strongest position it has ever been in financially, and we will continue to increase our transparency. We are also encouraged by emerging regulatory frameworks for stablecoin issuers, which should help further increase confidence in issuers like Circle.”

USDC’s Allaire promises increased transparency on reserves

Circle has been issuing monthly “attestation” reports on its assets since launch in Sept 2018. In May, following the collapse of the Terra blockchain, the company promised to become more transparent about its operations and began to report on the reserves that back USDC every week.

According to the latest update, its USDC reserve is made up of $13.6 billion in cash and $42.1 billion in three-month U.S. Treasury bills. The reserve is equivalent to the value of USDC it has in circulation, which totaled $55.7 billion as of July 1. It had just $1 billion of assets two years ago.

Circle says the reserves are kept in custody by U.S. financial firms, including BlackRock and Bank of New York Mellon. It is not clear how custodianship is split between the two entities and others.

But there has been speculation the company lost around $500 million in operations – alleged to be fees paid to lenders Silvergate and Signature for housing Circle’s cash, according to some observers. Allaire appeared to have put paid to those rumors.

Circle need not pay anyone to hold its assets – analyst

Crypto analyst Adam Cochran, who analyzed Circle’s Securities and Exchange Commission (SEC) filing related to its proposed listing last year, said the $500 million “is not a loss of cash assets spent on operations… this comes in the form of convertible debt.”

“This [convertible debt] impacts company valuations as it is dilutive and transfers ownership equity to an external entity and so you are adjusting your valuation down by a relative amount,” he stated.

He added that the company “doesn’t need to pay anyone to hold their assets.” Banks need the cash more. Cochran said Circle’s lending business “has zero impact on USDC”, and even “if those loans were insolvent the opt-in lenders lose USDC, it doesn’t impact the backing of USDC.”

Stablecoins have drawn increased attention from regulators since the demise of the $60 billion Terra blockchain. Some analysts warned that a loss of confidence in stablecoins could destabilize crypto asset markets.

For example, panicky investors withdrew over $10 billion in Tether’s USDT in under a week as Terra’s contagion spread. Tether CTO Paolo Ardoino described the event as the equivalent of a “bank run” in traditional finance.

Stablecoins are an important aspect of the crypto ecosystem. Traders use them to swiftly switch dollar value between exchanges, helping them to exploit arbitrage opportunities.


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