Circle allegedly modifies USDC reserves to mitigate risk of US default

Stablecoin Issuer Circle Adjusts Reserves Treasury to Reduce Risk of US Debt Defaults

Stablecoin issuer Circle has reportedly adjusted its reserves treasury to mitigate the risks of United States debt defaults. According to a May 10 Politico newsletter, Circle CEO Jeremy Allaire announced that the company has adjusted the mix of reserves backing its USD Coin (USDC) by switching to short-dated U.S. Treasuries to avoid being caught up in a potential U.S. debt default. The move aims to avoid debt exposure, as the firm no longer holds Treasuries maturing beyond early June.

The Blackrock-managed Circle Reserve Fund currently shows that its current holdings mature no later than May 31. Earlier this week, Treasury Secretary Janet Yellen stated that the government will be forced to make “decisions” if Congress doesn’t raise the federal debt limit. Raising the $31.4 trillion borrowing limit is currently causing conflict between U.S. President Joe Biden and Republicans. If the country defaulted on its debts, the $24 trillion Treasury market and global financial system would be rattled.

Tether’s Strategy to Reduce Its Reliance on Pure Bank Deposits

Rival stablecoin issuer Tether has claimed that a majority of its reserves are invested in Treasury bills with an average maturity of fewer than 90 days. The firm recently reported in a May 10 quarterly assurance report that it has been “working to take steps to reduce its reliance on pure bank deposits as a source of liquidity.” This move comes as USDC supply has been shrinking over the past year, falling by 46% since its all-time high of $56 billion in June 2022. As a result, its market share has fallen to 23%, with a circulation of $30 billion, and its rival Tether has benefited. Tether’s market dominance has increased to 62% with a circulation of $82 billion USDT.

Allaire’s Remarks on USDC Market Capitalization

In April, Allaire blamed America’s war on crypto and the banking crisis for USDC’s dwindling market capitalization. The company is taking measures to minimize risks and increase the demand for its stablecoin.

Conclusion

Circle and Tether’s strategies reflect their efforts to reduce their risk exposure while maintaining liquidity in the face of uncertainties in the U.S. Treasury market. With stablecoins playing a vital role in the cryptocurrency space, these moves are expected to help stabilize the market and ensure its continued growth.