Circle Reduces Short-Term Bonds Amid U.S. Debt Crisis
Circle, the company behind the second-largest stablecoin USDC, has announced plans to adjust its reserve holdings in response to the ongoing U.S. debt crisis.
Circle Reduces Short-Term Bonds Amid U.S. Debt Crisis
In a recent statement, CEO Jeremy Allaire revealed that Circle will cease holding short-term bonds after their maturity at the end of May. This decision comes amid concerns over the U.S. debt crisis, which could have severe implications for the global economy.
Allaire’s move is seen as a precautionary measure, drawing lessons from the $3.3 billion exposure at Silicon Valley Bank, which unexpectedly collapsed in March. At that time, USDC even fell to as low as $0.93 due to market chaos, though it quickly recovered. Circle was later fortunate enough to receive a bailout from the U.S. government.
Regarding collateral, USDC is backed by $28.5 billion in short-term U.S. Treasury bills (with maturities of 1-3 months), representing approximately 90% of its total supply. The remaining $3.6 billion is held in cash, according to the report as of March 31, 2023.
In contrast, Tether’s dominant stablecoin USDT boasts a market capitalization of $82.5 billion, with $53 billion (about 70%) held in U.S. Treasury bills. The stablecoin issuer recently released its Q1 2023 financial report, showing a net profit of $1.5 billion and increasing its surplus to $2.44 billion.
As reported by Coin68 on May 10, President Biden is currently planning to increase taxes on the crypto sector, particularly targeting high-net-worth investors. This move aims to address the national budget shortfall and alleviate pressure from potential defaults on federal government debt.
