Circle adjusts USDC reserves in case of a possible default in the US

The company has completely abandoned bonds maturing after the beginning of June

11.05.2023 - 07:30

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What’s new? Circle, the issuer of the USDC stablecoin, has made an adjustment in the composition of reserves to secure the coin in favor of short-term US bonds. The move is taken to mitigate risks in the event of a default in the States. Circle CEO Jeremy Allaire told Politico that the company no longer holds Treasury bonds maturing after early June because it does not want to bear the risks of “a potential breach of the ability of the US government to pay its debts.”

Politico’s material

What else is known? According to the Circle Reserve Fund, managed by BlackRock, a major investment firm, the current bonds are due no later than May 31. According to aggregator CoinGecko, USD Coin’s capitalization as of May 11 is $30,1 billion, well below its peak of $56 billion in 2022.

Circle CEO blames US regulators for the decrease in USDC capitalization

Jeremy Allaire stated that there is currently concern about the banking system and regulatory environment in the States

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About the US default. President Joe Biden and Republicans continue to confront Congress about raising the national debt ceiling from the current $31,4 trillion. Republicans agree to raise the ceiling only if the government will significantly reduce spending. US Treasury Secretary Janet Yellen warned that if Congress does not raise the limit of federal debt, then by June 1 the authorities may face a lack of funds for payments.

The vulnerability of Circle reserves to market events became apparent in March 2023, when the USDC temporarily lost its peg to the dollar after the collapse of Silicon Valley Bank.

According to Glassnode, the number of dollar-pegged stablecoins held on centralized exchanges (CEX) fell to its lowest level in two years on May 1, at 21,06 billion.

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