The digital currency company Circle had claimed that its stablecoin USD coin was backed 1: 1 by actual dollars in a bank account.
In July it was announced that this was no longer the case, and Circle announced in a “confirmation” from auditor Grant Thornton that cash accounted for just over 60% of USD Coin’s reserves. The other 40% was secured by various forms of notes and bonds.
What makes up the reserves of a stablecoin is important. What sets them apart from other cryptocurrencies is the fact that they are pegged to an existing currency such as the US dollar or the euro. The aim is to avoid the volatility that is often found in Bitcoin and other major cryptocurrencies.
Now Circle says it is again changing the composition of USD Coin’s reserves, with only cash and US Treasuries underpinning the stablecoin.
Center, a consortium founded by Circle and the Coinbase crypto exchange that developed the stablecoin, announced the change on Sunday.
“Given the mood in the community, our commitment to trust and transparency, and an evolving regulatory landscape, Circle, with support from Center and Coinbase, has announced that it will now hold the USDC reserve entirely in cash and US Treasuries with short maturities.” , Center says in a blog post. “These changes are being implemented quickly and will be reflected in future certification from Grant Thornton.”
Why it matters
Many crypto traders use stablecoins as an alternative to their bank to buy or sell digital currencies.
USD Coin is the second largest stablecoin in the world, with coins in circulation valued at $ 27 billion.
Tether, the largest stablecoin with $ 75 billion in circulation, has been scrutinizing regulators fearing it doesn’t have enough assets to support its peg to the greenback.
Earlier this year, Tether’s issuer announced that only 2.9% of its reserves are held in cash. The vast majority of its reserves consisted of commercial paper, a form of unsecured, short-term debt that is riskier than government bonds.
This sparked fears that a sudden mass redemption of tether tokens could destabilize short-term credit markets.
In their most recent political meeting, US Federal Reserve officials said stablecoins should be regulated as they pose a potential threat to financial stability.
Fed chairman Jerome Powell previously said that a Federal Reserve digital currency could make cryptocurrencies and stablecoins like USDC and Tether obsolete.
Increasingly, stablecoin issuers are being asked to break down their reserve compositions frequently in an attempt to resolve the opacity in the fast-growing crypto industry.
New York attorney general Letitia James said Tether, the company behind the stablecoin of the same name, should produce quarterly transparency reports. This is one of the things Tether had to do with James’ office as part of a $ 18.5 million settlement.
Both Tether and Circle have since released reports breaking down their reserves.
On Sunday, the Center deepened its “commitment to transparency” and “explored new ways to collaborate with the community”.
“By later this year, we expect to announce several new opportunities for members to formally participate in the Centre’s standards and governance activities,” she added.