Circle Squares Transparency On Dollar Reserves

In the bid to bring cryptocurrencies ever more into the mainstream — in retail use cases and commercial ones — the competition has been shaping up to be one between cryptos like bitcoin, stablecoins and central bank digital currencies (CBDCs).

Bitcoin and its brethren, of course, trade according to the whims of buyers and sellers, are speculative, and are not really backed by anything other than sentiment.

CBDCs exist, at least conceptually (most central banks’ plans are on the drawing board), as digital forms of fiat.

Then there are stablecoins, which peg their values to some underlying asset — such as the U.S. dollar. Diem, which has had a few incarnations, has been in the past pegged, in the planning stages, to a basket of currencies.

But in recent months, debate has swirled about volatility surrounding those digital coins — namely, whether the issuers have had the resources in place, in the back office, so to speak, to back the stablecoins as they trade and as they circulate.

This week, Circle, the firm behind the stablecoin known as USDC, filed an attestation that the reserves — the majority of them — are held in cash and equivalents. Breaking down the holdings, more than 60 percent of the $22.2 billion in USDC in circulation is held in cash and equivalents. Another 13 percent are held in Yankee CDs,  12 percent in U.S. Treasuries, 9 percent in commercial paper and 5 percent in corporate bonds.

In a blog post, Circle CEO Jeremy Allaire said the new attestation (which he noted is not a regulatory requirement) comes ahead of the company’s move toward public listing via special purpose acquisition company (SPAC).

“Core economic activities underpinning USDC are built inside the perimeter of the U.S. financial system, and not outside of it,” he said, adding that the company is “building an open medium of exchange on the internet that imports the fundamental trust of the U.S. dollar and the fundamental oversight and first principles of the U.S. financial system.”

He noted in the blog post that USDC in circulation has grown by more than 2,600 percent since the beginning of this year.

Cash … And Equivalents 

Now, it’s important to note that while a majority of the holdings are in “cash and equivalents” the equivalents designation includes investments and holding that can readily be converted to cash, with maturities that can measured over the short term (days, weeks, maybe a few months) and that are highly liquid. But they may not be directly convertible to a dollar on a one-to-one basis, which implies at least some volatility could be a hallmark with those holdings.

The Circle attestation follows a similar attestation by Tether in May, when that stablecoin’s asset breakdown showed that of 75 percent claimed to be held in cash, equivalents, bonds and paper, 3.8 percent of holdings in cash (or 2.9 percent of the total holdings), 65 percent in commercial paper and 12.6 percent in secured loans. In other words, the coins are backed, yes, but not wholly by fiat held in reserves.

The attestations come as the increasing scrutiny of digital assets and coins ramps up. As has been noted in this space, U.S. Treasury Secretary Janet Yellen has pressed for more regulations on stablecoins. The Bank of England said last month that stablecoins and any central bank digital currency should be regulated in the same way that banks handle other payments.