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Digital currency company Circle had claimed that its stablecoin, USD Coin, was backed 1: 1 by real dollars in a bank account.
In July, it was revealed that this was no longer the case, with Circle revealing in an “attestation” from auditors Grant Thornton that cash represented just over 60% of USD Coin’s reserves. The remaining 40% was backed by various forms of debt securities and bonds.
What constitutes a stablecoin’s reserves is important. What sets them apart from other cryptocurrencies is the fact that they are linked to an existing currency like the US dollar or the euro. The goal is to avoid the volatility often found in bitcoin and other major cryptocurrencies.
Now Circle says it is changing the reserve mix of the USD Coin again, with only cash and US Treasury bonds underlying the stable coin.
Center, a consortium founded by Circle and the crypto exchange Coinbase that developed stablecoin, unveiled the change on Sunday.
“Given community sentiment, 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 reserve. USDC entirely in cash and in short-lived US Treasuries, ”Center said in a blog post. “These changes are being implemented quickly and will be reflected in future Grant Thornton attestations.”
Why is this important
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 $ 27 billion in coins in circulation.
Tether, the largest stablecoin with $ 75 billion in circulation, has come to the attention of regulators, fearing it does not have enough assets to support its peg to the greenback.
Earlier this year, the tether issuer revealed that only 2.9% of its reserves are held in cash. The vast majority of its reserves were made up of commercial paper, a form of unsecured short-term debt that is riskier than government bonds.
This has raised fears that a massive and sudden buyout of home tokens could destabilize short-term credit markets.
At their last policy meeting, U.S. Federal Reserve officials said stablecoins should be regulated because they pose a potential threat to financial stability.
Fed Chairman Jerome Powell previously said a U.S. central bank digital currency could eliminate the need for cryptocurrencies and stablecoins like USDC and tether.
Transparency
There are growing calls for stablecoin issuers to provide frequent breakdowns of their reserve builds to address the opacity in the rapidly growing crypto industry.
New York Attorney General Letitia James said Tether, the company behind the stablecoin of the same name, is expected to submit quarterly transparency reports. This is one of the things Tether had to do in an $ 18.5 million settlement with James’ office.
Tether and Circle have since released reports on their reserves.
On Sunday, Center he “deepened his commitment to transparency” and “explored new opportunities for collaboration with the community”.
“By the end of the year, we plan to announce several new opportunities for members to become more formally involved in the standards and governance activities of the Center,” he added.
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