Stablecoin issuer Circle is taking measures to reduce its exposure to potential defaults on United States debt.
Circle CEO Jeremy Allaire stated that the company has adjusted its reserves backing the USD Coin by shifting to short-dated U.S. Treasuries.
The move is aimed at avoiding any risks associated with a potential U.S. debt default. Circle no longer holds Treasuries maturing beyond early June, as it aims to steer clear of debt exposure. The Circle Reserve Fund, managed by Blackrock, currently holds assets that mature no later than May 31st.
The decision comes amid discussions over raising the federal debt limit in the U.S. Treasury Secretary Janet Yellen warned that if Congress does not raise the borrowing limit, the government will be forced to make “decisions.”
Disagreements between President Joe Biden and Republicans have emerged regarding the $31.4 trillion borrowing limit. The global financial system and the $24 trillion Treasury market would face significant disruption if the U.S. were to default on its debts.
Meanwhile, rival stablecoin issuer Tether has claimed that the majority of its reserves are invested in Treasury bills with an average maturity of fewer than 90 days. Tether stated that it has been actively working to reduce its reliance on pure bank deposits for liquidity, as indicated in its quarterly assurance report.
The supply of USD Coin (USDC) has been decreasing over the past year, experiencing a 46% decline since its peak of $56 billion in June 2022. As a result, USDC’s market share has fallen to 23%, with a circulation of $30 billion. In contrast, Tether’s market dominance has increased to 62%, with a circulation of $82 billion USDT.
Allaire previously attributed the decline in USDC’s market capitalization to America’s regulatory actions against cryptocurrencies and the banking crisis.
Circle adjusts reserves
In conclusion, stablecoin issuer Circle has taken steps to reduce its exposure to potential U.S. debt defaults by adjusting its reserves and shifting to short-dated U.S. Treasuries. This move aims to mitigate risks associated with a potential default. The decision comes as discussions over raising the federal debt limit in the U.S. continue, with the global financial system and Treasury market at stake. Rival stablecoin issuer Tether has also been adjusting its reserves to reduce reliance on bank deposits. The supply of USD Coin has decreased, leading to a decline in its market share, while Tether’s dominance has increased. Allaire attributes the decline in USDC’s market capitalization to regulatory actions and the banking crisis.