USD Coin “Only Reserve Cash and U.S. Treasury Bonds”

USD Coin is a stable coin issued in 2018 by Circle, a crypto-asset company, and Coinbase, a major exchange. However, the USD coin operating organization, Center, has announced that it will hold only cash and U.S. Treasury bonds in its USD coin reserve.

Stablecoins are crypto assets with relatively stable prices. The feature of USD coin is that the exchange rate is fixed at 1 USD per 1 USDC with the US dollar legal currency as collateral. Since stable coins do not fluctuate as much in value as Bitcoin or Ethereum, stable transactions and operation are possible. In addition, it can be expected that losses can be minimized because assets can be temporarily evacuated when the crypto asset market is rough and is likely to crash.

However, since the reliability of the stablecoin value changes according to the stability guarantee, the details of the reserve as collateral are important. For example, tether, which boasts the largest circulation of a US dollar stablecoin, holds only 2.9% of its collateralized reserve in cash, and most of it is unsecured promissory notes.

The reason that tenors do not use US dollars as collateral at the same level as the circulation amount is that, in theory, the number of tether circulations does not have to correspond to dollars. The possibility of the collapse of Tether price stability is a matter of great concern for investors.

On the other hand, when the USD coin was issued, it was supported by Goldman Sachs, an American investment bank, and was expected to hold a rich US dollar. In addition, Circle is registered with FinCEN, a financial crime surveillance network of the U.S. Department of the Treasury, and since it has obtained a crypto asset business license from regulatory authorities along with Coinbase, USD Coin is highly reliable as a stablecoin.

However, in July 2021, Grant Thornton International, who oversees the USD Coin audit, made it clear in a report that 61% of the USD Coin reserve was cash and the rest consisted of bonds. Accordingly, the Center said on its official blog that Circle reserves were found to be cash and cash equivalents in May 2021, and a more detailed analysis was presented in July of the same year. Considering the evolving regulatory environment on reliability and transparency, Circle supports Center and Coinbase announced that it would hold its USD Coin reserves in all cash and short-term U.S. bonds.

The Federal Reserve also says stablecoins are a potential threat to financial market stability and should be regulated. In fact, Federal Reserve Chairman Jerome Powell even said that crypto assets such as USD coins and tethers would be unnecessary once digital currencies were prepared by the central bank of the United States. Related information can be found here.