The stablecoin war is just beginning

We’re cleaning up reserves – Circle’s reserves will be made up entirely of cash and US Treasuries by September 2021. The USD Coin (USDC) issuing companies are making a major change following the gnashing of teeth by stablecoin users, who discovered that its actual collateral did not quite match that described on paper

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Circle is consolidating its reserves

The Centre Consortium, which unites Circle and Coinbase, the two companies that issue USD Coin, announced in a blog post

on August 22, 2021 that Circle’s reserves guaranteeing stablecoin’s parity with the US dollar will soon consist solely of cash and US Treasury bills. The change is said to be aimed at meeting community demands and changing regulations as well as building trust and transparency:

“Given community sentiment, our commitment to trust and transparency, and the evolving regulatory landscape, Circle, with the support of Centre and Coinbase, has announced that it will now hold USDC reserves entirely in cash and short-term U.S. Treasuries.”

The question regarding whether or not Circle’s reserves should be changed was particularly raised after Circle CEO Jeremy Allaire revealed the company’s ambitions to become a national digital currency bank

, a move that would place it under the direct supervision of the US Federal Reserve (Fed).

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Tightening up in September after controversial May expansion

Coinbase President and COO (Chief Operating Officer) Emilie Choi clarified in her August 23 tweet that the changes will be implemented by September 2021. She pointed out that the next 2 USDC reserve certification reports of June and July 2021 will still show reserves composed of diversified assets, but the changes will be visible in the August 2021 report.

<img width=”536″ height=”586″ src=”//www.w3.org/2000/svg’%20viewBox=’0%200%20536%20586’%3E%3C/svg%3E” alt=’Emilie Choi’s Twitter post announcing that USD Coin (USDC) reserves will be composed solely of cash and US Treasuries by September 2021′ /><img width=”536″ height=”586″ src=”https://yellowrocketagency.com/wp-content/uploads/2021/08/image-45..png” alt=’Twitter post by Emilie Choi announcing that USD Coin (USDC) reserves will consist solely of of cash and US Treasuries by September 2021″ />Publication by Emilie Choi – Source: Twitter

The Consortium Centre blog post returned to Circle’s reserve expansion beyond cash, cash equivalents and US Treasuries in August 2021. However, the public was not made aware of this change in the actual content of USD Coin reserves

until July 2021.

The May 2021 certification from auditing firm Grant Thorton had revealed that the USD Coin was backed by 61% “cash and cash equivalents” and 12% U.S. Treasuries. In addition, the reserves consisted of US dollar-denominated certificates of deposits, commercial paper, corporate bonds and municipal bonds.

Coinbase has recently changed the disclosure on its

website regarding the true nature of the USDC reserves. This consolidation will finally allow stablecoin issuers to deliver on their initial promise and potentially escape pressure from US regulators.

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