Circle’s reserves will consist solely of cash and US Treasury bills by September 2021. The USD Coin (USDC) issuing companies are making a major change following the gnashing of teeth by stablecoin users, who discovered that the actual collateral of the stablecoin did not quite match that described on paper.
Circle consolidates its reserves
The Centre Consortium that unites Circle and Coinbase, the 2 companies issuing USD Coin, announced in a blog post on August 22, 2021 that Circle’s reserves guaranteeing stablecoin’s parity with the U.S. dollar will soon consist solely of cash and U.S. Treasury bills. This change would be aimed at meeting community demands and evolving regulations as well as building trust and transparency:
“Given community sentiment, our commitment to trust and transparency, and the evolving regulatory landscape, Circle, with the support of Centre and Coinbase, has announced that it will now hold USDC reserves entirely in cash and short-term U.S. Treasuries.”
The question regarding whether or not Circle’s reserve holdings should be changed came up in particular, after Circle CEO Jeremy Allaire revealed the company’s ambitions to become a national digital currency bank, a move that would put it under the direct supervision of the U.S. Federal Reserve (Fed).
Tightening in September after controversial May expansion
Coinbase President and COO (Chief Operating Officer) Emilie Choi clarified in her August 23 tweet that the changes will be implemented by September 2021. She noted that the next 2 USDC reserve certification reports from June and July 2021 will still show reserves composed of diversified assets, but that the changes will be visible in the August 2021 report.
The Consortium Centre’s blog post returned to Circle’s reserve expansion beyond cash, cash equivalents and US Treasury bills in August 2021. However, the public was not made aware of this change in the actual content of USD Coin reserves until July 2021.
The May 2021 certification by the auditing firm Grant Thorton had revealed that the USD Coin was backed by 61% “cash and cash equivalents” and 12% U.S. Treasury bills. In addition, the reserves consisted of US dollar-denominated certificates of deposits, commercial paper, corporate bonds and municipal bonds.
Coinbase has recently changed the disclosure on its website regarding the true nature of the USDC reserves. This consolidation will finally allow stablecoin issuers to fulfill their initial promise and possibly escape pressure from U.S. regulators.
