Circle Adjusts USDC Reserves to Avoid US Default Risk

    During an interview, Jeremy Allaire, the CEO of Circle, which is responsible for issuing USDC stablecoins, disclosed that the company had modified its USDC-backed reserve portfolio to include short-term US Treasuries.

    The move was made to prevent any potential violation of the US debt contract. Additionally, Allaire stated that the company has divested from Treasuries that mature after early June.

    Allaire stated, “We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts.” The Circle Reserve Fund, managed by Blackrock, shows that current holdings mature no later than May 31.

    Circle Reserve Fund Holdings. Source: Blackrock

    The U.S. government’s conflict over raising the $31.4 trillion borrowing limit has raised concerns about the $24 trillion Treasury market and the global financial system. Tether, Circle’s rival stablecoin issuer, claims that a majority of its reserves are invested in Treasury bills with an average maturity of fewer than 90 days. The company has been working to reduce its reliance on bank deposits as a source of liquidity, according to a May 10 quarterly assurance report.

    Over the past year, the supply of USDC has decreased by 46% since its peak of $56 billion in June 2022. As a result, its market share has fallen to 23%, with a circulation of $30 billion. Tether has benefited from this decline, with its market dominance increasing to 62% and a circulation of $82 billion USDT. 

    In April, Allaire attributed USDC’s dwindling market capitalization to America’s war on crypto and the banking crisis.

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