Circle has announced that it is changing the composition of its stablecoin USDC cryptocurrency reserves once again with cash and US Treasuries, This is after it incorrectly claimed that this currency is backed 1:1 with the actual dollar in a bank account.
Circle was revealed in July by ratification From auditor Grant Thornton, cash makes up just over 60 percent of reserves. The remaining 40 percent was backed by various forms of debt securities.
Stablecoins are distinguished from other cryptocurrencies in that they are tied to an existing currency such as the US dollar or the euro. The goal is to avoid the volatility often found in Bitcoin and other major cryptocurrencies.
Center, a business consortium founded by Circle and Coinbase, recently revealed the change. said in postRecognizing the sentiments of the community, our commitment to trust and transparency, and the evolving regulatory landscape. Circle, backed by Center and Coinbase, announced that it now holds the entire USDC reserve in cash and in the form of short-term US Treasuries.
The Trade Coalition added: These changes are being implemented urgently. It is reflected in future certifications by the accounting firm Grant Thornton.
The reserves were in cash until March 2020. When the company added short-term US Treasuries to accommodate the currency’s rapid growth. Currency reserves moved to a broader investment portfolio in May 2021.
Furthermore, Circle and Coinbase said that users can exchange one dollar of USDC for real dollars that can be deposited into a bank account.
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The importance of stable cryptocurrency
Many cryptocurrency traders use stablecoins as an alternative to buying or selling digital currencies. USDC is the world’s second largest stablecoin, with $27 billion in coins in circulation.
Tether, the largest stablecoin with a circulation of $75 billion, has come under scrutiny by regulators. This is amid fears that it does not have enough assets to support its peg to the dollar.
Earlier this year, Tether’s issuer revealed that 2.9 percent of its reserves were held in cash.
The vast majority of its reserves were made up of corporate bonds, precious metals and commercial paper. It is a form of short-term unsecured debt that is considered riskier than government bonds.
This has raised concerns that a sudden mass recovery of Tether tokens could destabilize short-term credit markets.
At the latest policy meeting, US Federal Reserve officials said that stablecoins should be regulated because they pose a potential threat to financial stability.
Federal Reserve Chairman Jerome Powell previously said that a US central bank digital currency could eliminate the need for cryptocurrencies and stablecoins like USDC and Tether.
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There are increasing calls for stablecoin issuers to provide details of the reserve composition to address the uncertainty in the fast-growing cryptocurrency industry.
New York Attorney General Letitia James said that Tether, which is behind the stablecoin of the same name, must file quarterly transparency reports.
This was one of the things Tether had to do as part of a $18.5 million settlement with the New York attorney general’s office.
In addition, the Centre’s business consortium has deepened its commitment to transparency. He said he is exploring new opportunities to collaborate with the community.
He added, “We expect by later this year to announce many new opportunities for members. In order to participate more formally in the standards of the center and governance activities.