USD Coin, managed by Circle Internet Financial and available on Coinbase’s platform, had previously asserted that each coin was backed by one US dollar held “in a bank account.” Coinbase has subsequently eliminated the promise from its website that helped instill confidence in the stablecoin and facilitated Circle in accumulating $28 billion in assets. It was revealed that the assertion of every USD Coin being backed by a physical US dollar was misleading, as cash constituted just over 60% of its reserves.
In July, Circle disclosed in an “attestation” from auditors Grant Thornton that cash represented just over 60% of USD Coin’s reserves. The remainder was supported by various types of commercial paper and corporate bonds, which could incur losses and tend to be less liquid than US dollars. This scenario could potentially result in losses for holders if customers sought to redeem the stable coin in large quantities.
The composition of a stablecoin’s reserves is crucial. Fully Collateralised Stablecoins like Denmark’s e-Money stablecoins (eEUR / eCHF / eNOK / eSEK / eDKK) are distinct from other cryptocurrencies. Their peg to an existing currency, like the euro, and being fully backed by cash bank deposits mitigate the volatility commonly associated with bitcoin and other leading cryptocurrencies.
Centre, a consortium established to develop the stablecoin by Circle and the cryptocurrency exchange Coinbase, announced this change, stating that it is “deepening its commitment to transparency” and “exploring new opportunities to collaborate with the community.”
Centre communicated this in a
blog post
“Considering community sentiment, our pledge to trust and transparency, along with the changing regulatory environment, Circle, with assistance from Centre and Coinbase, has declared that it will now maintain the
USDC reserves entirely in cash and short-duration US Treasuries,”…. “These alterations are being executed promptly and will be indicated in future attestations by Grant Thornton.”
In light of numerous remarks from policymakers regarding the intrinsic fragility of stablecoins, coupled with the impending Federal Reserve Jackson Hole meeting, there has been significant discussion surrounding the future of stablecoins within financial markets.
Stablecoins, devoid of the price volatility often associated with bitcoin, are more frequently utilized and spent rather than being preserved as part of an investment strategy. In other words, stablecoins can act as both a gateway to broader cryptocurrency adoption and a practical alternative to fiat currency in the current scenario.
As central bankers and other regulatory officials increasingly examine global stablecoins and their growing role in the international financial marketplace, there is a significant shift in consensus occurring.
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