Circle Revamps USDC Reserve Structure to Mitigate Default Risks
In Brief
Paxos, a stablecoin issuer, has lowered its risk exposure to possible defaults in U.S. national debt.
As the second top player in the stablecoin market, Circle is keen on limiting its exposure to U.S. debt defaults. In a strategic move to safeguard its assets, it has reportedly revised its reserve holdings, opting for a safer treasure composition.
In a newsletter from Politico on May 10, Circle's CEO Jeremy Allaire disclosed that the firm has altered the mix of assets backing USDC by transitioning to short-term U.S. Treasuries, thereby sidestepping potential pitfalls related to debt defaults. He mentioned that the company has decided not to invest in Treasuries with maturity dates extending beyond early June to avert any debt-related risks.
The Treasury Secretary recently indicated that the government may need to make critical decisions if Congress doesn't raise the federal debt ceiling. U.S. President Joe Biden warned that a default could send shockwaves through the $24 trillion Treasury market and disrupt the global financial sphere. Even within Congress, there are divided opinions regarding the necessity of increasing this debt limit, particularly among Republicans.
Tether claims that a significant portion of its reserves is allocated to Treasury Bills, each averaging less than 90 days in maturity. In their statement, the company noted that it is actively seeking to reduce its dependence on traditional bank deposits for liquidity. Q1 2023 Assurance Report The supply of USDC has surged by an impressive 46% over the past year, reaching a peak of $56 billion in June 2022. However, its market share has dipped to 23%, equating to a circulation of $30 billion, while Tether has gained significant traction with a 62% market share.
In April, Allaire pointed fingers at the ongoing crypto clampdown and the looming banking crisis for the declining valuation of their asset.
On March 10, following a wave of $42 billion in withdrawals, the California Department of Financial Protection shut down Silicon Valley Bank. Circle reported that they had $3.3 billion parked in Silicon Valley Bank out of a total reserve of $40 billion.
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