Circle Reportedly Adjusts USDC Reserves to Avoid US Default Risk

Circle, a stablecoin issuer, has apparently altered its reserves treasury in an effort to lessen the risks of US debt defaults. Circle CEO Jeremy Allaire stated in a May 10 Politico newsletter that the firm has modified the composition of reserves underpinning the USD Coin $1.00 by switching to short-dated US Treasuries to avoid being caught up in a potential US government default.

He stated that the company no longer holds Treasuries maturing after early June in order to prevent debt exposure. “We don’t want to carry the risk of a potential breach in the US government’s ability to pay its debts.”

Current assets in the Blackrock-managed Circle Reserve Fund mature no later than May 31.

Treasury Secretary Janet Yellen stated earlier this week that the government will be forced to make “decisions” if Congress does not raise the federal debt ceiling.

US President Joe Biden and Republicans are at odds over lifting the $31.4 trillion debt ceiling. If the government defaulted on its debts, the $24 trillion Treasury market and global financial system would be shaken.

Tether, another stablecoin issuer, asserts that the bulk of its reserves are invested in Treasury Bills with an average maturity of fewer than 90 days. According to a quarterly assurance report issued on May 10, the firm has been “working to reduce its reliance on pure bank deposits as a source of liquidity.”

The supply of USDC has been decreasing over the last year, falling by 46% since its all-time high of $56 billion in June 2022. As a result, its market share has dropped to 23%, with a $30 billion circulation. Tether, the competitor, has benefited as its market domination has climbed to 62% with a circulation of $82 billion USDT.

In April, Allaire blamed America’s crypto war and the coming banking crisis for the country’s declining market capitalization.