While this period of bear markets is ripe for rumours, Circle’s USDC is falling victim to FUD. Jeremy Allaire, CEO of the issuing company, responded to these concerns on Twitter and we come back to how the stablecoin is collateralised.
USDC plagued by FUD
During a bear market, it is common to see on social media what is called the “fear, uncertainty and doubt» (FUD) and in recent days the USDC of Circle and Coinbase don’t escape this. The bankruptcies and difficulties encountered by several major players in the ecosystem are indeed conducive to rumors.
For its part, the collapse of the UST has instilled fear towards stablecoins. Concerning the USDC, if one navigates on Twitter it is easy to find calls for caution. For example, there are claims that the company pays significant rates to store its reserves. Which would then cost him billions of dollars in interest a year:
Circle’s USDC scheme is on the brink of collapse. If you read their SPAC IPO filings its clear they have been losing money constantly but theres something dirtier happening underneath. They’re at major risk on defaulting on USDC reserves. A deep dive 🧵 on USDC. 👇 pic.twitter.com/GgN5oeD7gO
—Geralt Davidson (@CryptoInsider23) June 29, 2022
As often in such practices, the reasoning lack sources. We don’t know where the numbers come from and fragments of truths are arranged togetherto give a believable story.
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Circle CEO’s response
Jeremy Allaire, the CEO of Circle, wanted to communicate to dispel the FUD propagated against the USDC.
1/ With so many firms facing fundamental challenges and risks, Circle has amped up our own information about Circle and USDC. Sharing it here so it’s fresh for people to review. We started publishing these in the days following the Terra collapse. https://t.co/SYNpwYxUif
— Jeremy Allaire (@jerallaire) July 2, 2022
In his argument, Jeremy Allaire emphasizes in particular the confusion which is made between the USDC, which has been loaned by third parties to players like Three Arrows Capital (3AC) and the reserves of the stablecoin:
“There is also obvious confusion between USDC reserves, which are regulated […] and transparent […] and USDC which itself is used in lending markets, away from Circle. »
Indeed, regardless of the quantities of USDC that may have been loaned to bankrupt actors, these debts do not depend on Circle. Thus, they cannot impact the balance sheet of the company.
One of the scenarios where the company could have been exposed to bankrupt actors is the Circle Yield program. The latter makes it possible to delegate its liquidity to Circle Bahamas and this liquidity is loaned to other players to generate a return.
But here again, even if the program fails, the latter there is no need to create contagion with the reserves of the stablecoin. These are indeed independent. This means that the reserve used as collateral by the stablecoin is not allocated to risky investments.
USDC: a regulated stablecoin
According to Jeremy Allaire, Circle is in the financial position the strongest she’s ever had. The latter also shares several articles from the company, explaining how the USDC’s dollar peg is maintained. Stablecoin Reserve Matters 20% fiat dollars and 80% short-term bondsnamely, US Treasury bonds.
Each month, the reserves are audited by Grant Thornton, the 6th largest consulting firm in the world. These reserves are primarily held by BlackRock and BNY Mellon. In addition, Circle’s accounts are audited annually by the Securities and Exchange Commission (SEC).
In this, we must differentiate the USDC from an algorithmic stablecoin like the late UST. Even though the price may undergo variations during important market movements, it will always be possible to trade the asset with Circle at a ratio of one to one with the dollar.
Of course, despite strict regulation, it is not impossible for a company to lie about its situation. But if such a scenario were true, Circle, its managers and the various stakeholders would then face important legal consequences.
In addition, let’s not forget that the EUROC, the company’s new stablecoin backed by the euro, will inevitably attract the attention of European officials. With this in mind, it is therefore in Circle’s interest, to be as reliable as possible. This does not mean placing blind trust in a company. But diversification and a critical spirit remain the best weapons to get out of the game.
👉 Related – Circle Unveils Euro Coin (EUROC), Its First Euro-Backed Stablecoin
Sources: USDC Audit, Circle Yield
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