The digital currency company Circle has long claimed that its stable currency, USD Coin, was backed 1: 1 by real dollars in a bank account.
In July, it was revealed that this was no longer the case, with Circle revealing in an “attestation” from auditors Grant Thornton that the cash accounted for just over 60% of USD Coin’s reserves. The other 40% was backed by various forms of debt securities and bonds.
What constitutes the reserves of a stable currency is important. What sets them apart from other cryptocurrencies is the fact that they are pegged to an existing currency such as the US dollar or the euro. The goal is to avoid the volatility that is often found in bitcoin and other major cryptocurrencies.
Now, Circle says it changes the composition of USD Coin reserves once again, with only cash and US Treasury bonds supporting the stable currency.
Center, a consortium founded by Circle and Crypto Exchange Coinbase, which developed the stablecoin, announced the change on Sunday.
“Aware of the sense of community, our commitment to trust and transparency and an evolving regulatory landscape, Circle, with the support of Center and Coinbase, has announced that it will now keep the USD reserve fully cash and U.S. Treasury in the short term, “Center said in a blog post.
“These changes are being implemented quickly and will be reflected in future Grant Thornton attestations.”
Why is it important?
Many cryptocurrencies use stable currencies as an alternative to their bank, to buy or sell digital currencies.
USD Coin is the second largest stable currency in the world, valued at $ 27 billion in circulation.
Tether, the largest stablecoin with $ 75 billion in circulation, has investigated regulators amid fears it may not have enough assets to support its relationship with the green dollar.
Earlier this year, the tether issuer revealed that only 2.9% of its reserves were held in cash. The vast majority of their reserves were made up of commercial paper, a form of short-term unsecured debt that is riskier than government bonds.
This sparked fears that a sudden massive redemption of fixing tokens could destabilize short-term credit markets.
At their last political meeting, U.S. Federal Reserve officials said the settlements should be regulated as they pose a potential threat to financial stability.
Fed Chairman Jerome Powell has previously said that a US central bank digital currency could eliminate the need for cryptocurrencies and stables like USDC and tether.
Transparency
There are growing calls for stablecoin issuers to provide frequent breakdowns of their backup compositions to address opacity in the fast-growing cryptographic industry.
New York Attorney General Letitia James said Tether, the company behind the stable currency of the same name, should submit quarterly transparency reports. It’s one of the things that had to be done at Tether as part of a $ 18.5 million deal with James ’office.
Tether and Circle have since published reports breaking down their reservations.
On Sunday, Center “deepened its commitment to transparency” and “explored new opportunities to collaborate with the community.”
“By the end of this year we hope to announce several new opportunities for members to become more formally involved with the Centre’s governance rules and activities,” he added.