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| The second largest stable cryptocurrency in the world is undergoing a change |
Circle has announced that it will use cash and US Treasuries to once again change the composition of the USDC stablecoin cryptocurrency reserve. He had previously wrongly claimed that the currency in the bank account was pegged 1:1 to the real US dollar.
Circle was certified as a chartered accountant by Grant Thornton in July and announced that cash represented only more than 60% of its reserves. The remaining 40% is secured by various forms of debt.
The difference between stablecoins and other cryptocurrencies is that they are tied to existing currencies (such as the US dollar or the euro). The goal is to avoid the volatility that is common with Bitcoin and other major cryptocurrencies.
The Center for Business Alliance, founded by Circle and Coinbase, recently announced this change. He said in a blog post: Acknowledging the sentiments of the community, our commitment to trust and transparency, and changing the company landscape. Circle, backed by Center and Coinbase, announced that it now holds all USDC reserves in the form of cash and short-term US Treasuries.
The union added: These changes are being implemented urgently. This is reflected in the future certification of the audit firm Grant Thornton.
As of March 2020, all of these reserves were cash. At the time, the company issued short-term US Treasuries to accommodate the currency's rapid growth. In May 2021, foreign exchange reserves will be transferred to a larger investment portfolio.
In addition, Circle and Coinbase stated that users can convert 1 US dollar into real US dollars that can be deposited into bank accounts.
The importance of stable cryptocurrency
Many cryptocurrency traders use stablecoins as an alternative to buying and selling cryptocurrencies. USDC is the second largest stablecoin in the world with a circulation of $27 billion.
Tether is the largest stablecoin with a circulation of $75 billion and has been reviewed by regulators. This is because people are worried that he does not have enough assets to support his currency, which is pegged to the dollar.
Earlier this year, the Tether issuer announced that 2.9% of its reserves were held in cash.
The majority of reserves consist of corporate bonds, precious metals, and commercial paper. These are unsecured short-term debt securities and are considered riskier than government bonds.
This raises concerns that a massive surge in tether tokens could destabilize the credit market in the short term.
At a recent policy meeting, Federal Reserve officials said that stablecoins should be regulated because they pose a potential threat to financial stability.
Federal Reserve Chairman Jerome Powell previously said that the Federal Reserve’s digital currency could render cryptocurrencies and stablecoins (such as USDC and Tether) obsolete.
Transparency
More and more people are asking stablecoin issuers to provide detailed information about the composition of their reserves in order to deal with the uncertainty in the fast-growing crypto industry.
New York Attorney General Letitia James said that Tether, which stands behind the stablecoin of the same name, is required to submit a quarterly transparency report.
This is one of the things Tether has to do under the $18.5 million settlement agreement with the New York attorney general.
In addition, the center's business alliance has strengthened its commitment to transparency. He said he is looking for new ways to work with the community.
He added, “We plan to announce several new member opportunities later this year. To formally increase participation in the center’s standards and governance activities.