Circle Takes Steps to Mitigate Risks of US Debt Defaults
Stablecoin issuer Circle has adjusted its reserves treasury to reduce its exposure to potential United States debt defaults.
According to a recent Politico newsletter, Circle CEO Jeremy Allaire stated that the firm has adjusted the mix of reserves backing its USD Coin by switching to short-dated U.S. Treasurys to avoid getting caught up in a potential U.S. debt default.
“We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts,” Allaire said in the interview.
The Circle Reserve Fund, which is managed by BlackRock, holds no U.S. government debt maturing beyond 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.
Currently, the Biden administration and the Republicans are in conflict over raising the $31.4 trillion borrowing limit. The United States is currently very close to defaulting on its debt, and failure to raise the debt ceiling could destabilize the global financial system. Even though the United States has never defaulted on its debt, a last-minute agreement to solve the situation is very likely.
However, the company has had a turbulent year so far, with the USDC stablecoin losing its peg in March 2023. This led to major withdrawals from the USD Coin, with its market cap dropping by more than 25% in just over the last month.
Over the past year, the supply of USDC has been decreasing, dropping by 46% from its peak of $56 billion in June 2022. As a result, its market share has dwindled to 23%, with a current circulation of $30 billion. Nevertheless, Circle's USDC stablecoin is still the second-largest stablecoin.
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Circle has had a turbulent year so far, with the USDC losing its peg in March 2023. This led to major withdrawals from the USD Coin.
Rival stablecoin issuer Tether claims that a majority of its reserves are invested in Treasury bills with an average maturity of fewer than 90 days. The company stated that it has been “working to take steps to reduce its reliance on pure bank deposits as a source of liquidity,” according to a May 10 quarterly assurance report.
