Circle adjusts USDC reserves, avoiding US default risk

Reportedly, stablecoin issuer Circle has amended its reserve treasury to mitigate the risk of U.S. debt defaults.

According to a May 10 Politico newsletter, Circle CEO Jeremy Allaire stated that the company has shifted to short-term U.S. Treasury bonds as a precaution against a potential US debt default.

According to him, the company no longer possesses treasuries with maturities beyond early June to avoid debt exposure.

“We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts.”

Current holdings of the Blackrock-managed Circle Reserve Fund mature no later than May 31.

Treasury Secretary Janet Yellen stated earlier this week that the government will be compelled to make “decisions” if Congress does not raise the federal debt limit.

President Joe Biden and Republicans disagree on whether or not to raise the $31.4 trillion debt ceiling. If the country defaulted on its debts, the $24 trillion Treasury market and global financial system would be thrown into disarray.

Tether, a competitor stablecoin issuer, asserts that the majority of its reserves are invested in Treasury Bills with an average maturity of less than 90 days.

The company stated in a quarterly assurance report dated May 10 that it was “working to reduce its reliance on pure bank deposits as a source of liquidity.”

The USDC supply has decreased by 46% since June 2022, when it reached its all-time peak of $56 billion. This has reduced its market share to 23% with a $30 billion circulation.

The beneficiary has been rival Tether, as its market dominance has increased to 62% with $82 billion USDT in circulation.

In April, Allaire attributed the cryptocurrency’s declining market capitalization to the United States’ anti-cryptocurrency campaign and the impending banking crisis.