Jeremy Allaire, Circle’s CEO, has announced his intention to make the USDC issuer the first stablecoin operator to go public. Allaire vowed to make his company an example of transparency to establish USDC as a benchmark asset and to facilitate Circle’s IPO. Yet during 2021, the company’s disclosures about its dollar reserves have become particularly evasive.
USDC, soon to be the most transparent stablecoin on the market?
Launched in 2018 as a result of a partnership in Coinbase and Circle, USDC is touted by its issuer as “the future of money transfers.” With $26 billion of USDC in circulation, stablecoin now accounts for more than 24 percent of the stablecoin market. Jeremy Allaire, in a series of tweets posted on July 8, said Circle would work to increase the transparency of the token as part of Circle’s transition to public company status.
Since 2018, Circle has published attestations, provided by Grant Thornton, that review reserves at a point in time, but do not provide data as comprehensive as a formal audit.
Until March 2020, the attestations indicated that USDC was backed by dollars, held by government-approved U.S. depository institutions. However, since the start of the pandemic, these certifications have become more evasive.
For example, Circle claimed that the reserves were held by specialized institutions and composed of “approved investments,” without ever specifying their nature. As of June 2020, Circle again stated that its USDCs were backed by “reserved assets”. According to International Monetary Fund (IMF) guidelines, these assets are necessarily foreign currency, gold or special drawing rights (SDRs) that represent the right to obtain foreign currency or other reserve assets.
Finally, the publication of certificates has slowed down significantly since December. However, the runaway success of the USDC, during the last bull run and fueled by Coinbase’s IPO, has necessarily created some accounting concerns for its issuer.
“Circle intends to become the most public and transparent full-reserve stablecoin operator in the market. With the upcoming public filings, and the new USDC reserve certifications, our intention is to provide a detailed summary of USDC reserves.”
Jeremy Allaire
Circle’s latest statement as to its reserves mentions cash, cash equivalents, and short-term debt securities. So it appears that its reserves have a similar composition to its main competitor, Tether.
Towards an IPO for Circle
The desire for transparency communicated by Allaire is part of Circle’s IPO process. On July 8, the company announced its intention to go public via the Special Purpose Acquisition Company (SPAC) mechanism. The operation should be carried out through a merger with the SPAC Concird Aquistion, led by Atlas Merchant Capital. According to the Wall Street Journal, the transaction would value Circle at $4.5 billion. The IPO is scheduled for the fourth quarter of 2021. Once effective, Circle will become an Irish holding company listed in New York under the ticker “CIRCL”.
As Circle acknowledges, the listing will require the company to meet the most stringent U.S. regulatory accounting standards:
“Not only will all of Circle’s financial accounts be subject to the highest standards of accountability, but ultimately all of these public disclosures will be subject to the standards of the United States’ primary financial regulator, the SEC.”
Jeremy Allaire
The reserves of stablecoin issuers have become a hot topic in the cryptosphere. The New York attorney general concluded in February that Tether’s claim that its reserves were fully backed by dollars was “a lie.” Tether paid an $18.5 million penalty to end the charges without admitting guilt. In addition, the president of the Boston Federal Reserve (Fed) noted that stablecoins could pose a threat to the short-term credit market.
