The entire crypto space felt a negative impact from the failure of the algorithmic stablecoin UST and Terra’s native token, LUNA. Other top stablecoin projects like Tether’s USDT and Circle’s (USDC) have received more pressure from different angles.
Many crypto investors and participants started doubting the stability of stablecoins with the collapse of the Terra ecosystem. Several others have been clamoring for more transparency in reserves and the financial status of these stablecoins recently.
Disclosure of a project’s reserves is vital in building the customers’ confidence and drawing potential investors. Moreover, it displays proof that the project has enough liquidity to handle any situation. Hence, even in sudden panic sell-offs, it could conveniently settle all asset holders within the shortest period.
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However, a lack of sufficient reserves for a stablecoin could be devastating. There is a possible collapse once pressure from users builds on withdrawals as they move to more viable projects. There could be a distortion with investment plans for investors if a project has no available liquidity.
In compliance with popular demands, Circle Internet Financial revealed USDC reserves through its first monthly report. The firm made this disclosure by stating the project’s assets were in storage as of June 30, 2022. According to Circle, USDC reserves are held in cash and 3-month U.S. Treasuries.
The monthly report from Circle has an amount that corresponds with the market cap of USDC from CoinMarketCap data. The firm recorded its total reserves of about $55.7 billion. It comprises two parts; the first amounting to $42.122 billion and the second to $13.5 billion.
The firm invested the first reserve portion in the U.S. Treasury bonds. The second portion is kept as cash and invested in U.S.-regulated financial institutions.
Additionally, Circle stated that it has good interactions with regulators. Speaking on behalf of the firm, the Chief Financial Officer, Jeremy Fox-Green, commented on the compliance of USDC since its inception in 2018.
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He maintained that the firm has kept in line with all audits and recommendations from regulators, including the SEC. In addition, he revealed that the firm receives monthly certification on the adequacy of its project’s reserves and compositions. These are majorly from top market accounting companies and other third parties.
With transparency and compliance with regulations, Circle and Tether are wading in their innovative moves. There are notable new projects from the firms that track other fiat currencies.
Circle has its EUROC, a stablecoin pegged on the euro, while Tether’s latest new coin is pegged to the Brazilian real. Generally, crypto participants are recently seeing increased transparency from more stablecoin projects.
Even Tether has announced plans to reduce fear and nervousness among investors by lowering paper reserves to zero.
Featured image from Circle, chart from TradingView.com
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