Coinbase President Says USDC Reserves Will Now Be Held Only In Cash And Short Term Treasuries

Coinbase President Says USDC Reserves Will Now Be Held Only In Cash And Short Term Treasuries

Coinbase’s President and COO said this week that Coinbase’s reserves of its USDC stablecoin are going to now be held in cash and treasuries.

Digital currency company Circle had said back in July that the some of the $27 billion in assets backing USDC would also be held in corporate and commercial bonds.

Centre, a consortium founded by Circle and crypto exchange Coinbase, wrote in a blog post this weekend: “Mindful of community sentiment, our commitment to trust and transparency, and an evolving regulatory landscape, Circle, with the support of Centre and Coinbase, has announced that it will now hold the USDC reserve entirely in cash and short duration US Treasuries. These changes are being implemented expeditiously and will be reflected in future attestations by Grant Thornton.”

Bloomberg added on Monday:

Centre, the consortium that includes Coinbase and Circle, revealed in July that 61% of the reserves were in risk-free assets like cash and its equivalents, but that some of the reserves were in assets that contain some risk of default, such as corporate debt and certificates of deposit with foreign banks. An additional 12% of the funds were in Treasury bonds, which aren’t considered a default risk but also aren’t as liquid as cash.

The revelation in July stood at odds with Coinbase’s website, which had previously said that all USD Coin was “backed by dollars in a bank account”. 

Coinbase President and COO Emilie Choi admitted that the company was in error after Circle made the revelation. 

1/ Quick update on USDC. Starting September 2021, USDC reserves will be held in cash and short-duration US government treasuries. This is the approach we want for USDC reserves.

— Emilie Choi (@emiliemc) August 23, 2021

“USDC has always been fully backed by reserves equal to or greater than the USDC in circulation, giving users the ability to always redeem 1 USD Coin for US$1.00,” she wrote. “We know that a lot of customers get USDC on Coinbase, and we previously said that every USDC is ‘backed by a dollar in a bank account.’ Our language could have been clearer here.”

“When Circle shared their May report about USDC reserves in late July (which included a more diversified pool of investments for the first time) we should have moved faster to update statements like that on our website. That was a mistake and Coinbase takes ownership for that,” Choi concluded.

Though the move may seem like a seismic revelation, not all analysts agree. 

“The old investment rules for USD Coin were perfectly sound. Circle is making a splashy announcement to address a problem that doesn’t exist, in hopes of making itself
seem more prudent than rivals,” said Aaron Brown, a crypto investor who writes for Bloomberg Opinion.

USDC is the world’s second largest stablecoin. The world’s largest stablecoin, Tether, is currently under scrutiny by Washington for its claim that each token is backed by one U.S. dollar, either through cash or assets like bonds. Regulators continue to seek to examine if a run on stablecoins could cause a selloff in the underlying assets backstopping them. 

Tyler Durden
Mon, 08/23/2021 – 21:40

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