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 intense scrutiny following the collapse of Terra’s stablecoin UST in May, with observers calling for greater transparency of assets backing dollar-pegged cryptocurrencies. .

Allaire said Circle has strong capital and liquidity reserves, allaying market concerns that the company was bleeding millions of dollars in revenue by paying some banks a certain rate to hold their assets. There were also a few worry on the company’s lending practices.

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

“But the bottom line is that because Circle Yield is regulated, over-collateralized, offered as security only to accredited investors, and has a very conservative UW approach, we had no problems,” he explained, adding:

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

USDC’s Allaire promises increased transparency on reserves

Circle has been publishing monthly “attestation” reports on its assets since its launch in September 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 support the USDC each 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 US Treasury bills. The reserve is equal to the value of USDC in circulation, which was $55.7 billion as of July 1. It only had $1 billion in assets two years ago.

Circle says the reserves are held by US financial firms, including BlackRock and Bank of New York Mellon. It is unknown how custody is divided between the two entities and the others.

But there was speculation according to some observers, the company lost around $500 million in trades – thought to be fees paid to lenders Silvergate and Signature for housing Circle’s money. Allaire seems to have put an end to these rumors.

Circle doesn’t need to pay anyone to hold its assets – analyst

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

“This [convertible debt] has an impact on business valuations because it is dilutive and transfers equity to an external entity and therefore you adjust your valuation down by a relative amount,” he said.

He added that the company “doesn’t need to pay anyone to hold its assets.” Banks need more liquidity. Cochran said Circle’s lending activity “has no impact on USDC,” and even “if those loans were insolvent, opt-in lenders lose USDC, it doesn’t affect the support of the USDC”.

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

For example, panicked investors withdrew more than $10 billion USDT from Tether in less than a week as the Terra 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 quickly change the dollar value between trades, helping them exploit arbitrage opportunities.

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