Circle Adjusts Reserves to Avoid US Debt Default Risk for USD Coin
Stablecoin issuer Circle has adjusted its reserves treasury to reduce risks of US debt defaults by switching to short-dated U.S. Treasuries to avoid debt exposure.
Circle, the stablecoin issuer, has reportedly adjusted its reserves treasury in an attempt to reduce the risks of US debt defaults. The CEO of Circle, Jeremy Allaire, said that the company has adjusted the mix of reserves backing its USD Coin by switching to short-dated US Treasuries to avoid getting caught up in a potential US debt default. The firm no longer holds Treasuries maturing beyond early June because it wants to avoid debt exposure.
The Blackrock-managed Circle Reserve Fund shows that current holdings mature no later than May 31. Earlier this week, Treasury Secretary Janet Yellen said the government would be forced to make "decisions" if Congress did not raise the federal debt limit. US President Joe Biden and Republicans are in conflict over raising the $31.4tn borrowing limit. The $24tn Treasury market and global financial system would be rattled if the US defaulted on its debts.
Rival stablecoin issuer Tether claims a majority of its reserves are invested in Treasury Bills with an average maturity of fewer than 90 days. The company stated that it has been "working to take steps to reduce its reliance on pure bank deposits as a source of liquidity," according to a May 10 quarterly assurance report.
USDC supply has been shrinking over the past year, falling by 46% since its all-time high of $56bn in June 2022. This has caused its market share to fall to 23% with a circulation of $30bn. The beneficiary has been rival by Tether as its market dominance has increased to 62% with a circulation of $82bn USDT. In April, Allaire blamed America's war on crypto and the impending banking crisis for its dwindling market capitalization.
Stablecoins are cryptocurrencies designed to minimize the volatility of their price, relative to some "stable" asset or basket of assets. They are often pegged to a fiat currency like the US dollar, and their value is supposed to be stable compared to that currency. As such, they have become a popular way for people to move money around without the need for a bank account or credit card. Stablecoins have also become popular in the cryptocurrency market, where they are used to trade cryptocurrencies like Bitcoin and Ethereum.
