The crypto community started to be warier of stablecoins after the collapse of the Terra ecosystem, which included its native token LUNA and its algorithmic stablecoin UST. This led to large projects like Tether’s USDT and Circle’s USD Coin (USDC) being pushed to be more open about their finances.
The first monthly report on the USDC reserve assets Circle Internet Financial had in storage as of June 30, 2022, was made public on July 14th. The corporation disclosed that only cash and 3-month US Treasury bonds are used to hold the USDC reserve. This is significant because it demonstrates that, in the event of a severe panic episode or other adverse occurrences, there would be sufficient liquidity to quickly restore all assets.
Client pressure to withdraw money and switch to a more reliable asset could cause a spiral effect that results in a coin’s collapse when it lacks adequate backing. Additionally, a lack of immediate liquidity may have a significant impact on the impacted parties’ investment plans.
In accordance with Circle’s report, the company has $55.7 billion in total reserves, which are split into two parts: $13.5 billion in cash invested in US financial institutions, and $42.122 billion in Treasury bonds.
In a statement, Circle’s Chief Financial Officer, Jeremy Fox-Geen, stated that since the launch of USDC in 2018, Circle had received monthly certifications on the sufficiency of reserves and the makeup of those reserves from reputable accounting firms. Circle has also taken care to follow all audit requirements set forth by regulators, as well as their recommendations.
By doing this, Circle and Tether are able to issue new stablecoins that retain parity with other conventional currencies. Examples of these new stablecoins are EUROC, which is backed by the euro, and Tether’s new stablecoin, which is tied to the Brazilian real.
As mentioned, with the de-pegging of various tokens, whether algorithmic or not, stablecoin projects are becoming more open. The most notable instance is UST, which fell from one USD to less than ten cents in a matter of days.