Circle Bought US Treasuries As Reserve Assets USDC

Key Points:

• Circle announced that repurchase agreements for US Treasuries would continue to be part of the reserve fund.
• BlackRock is the major asset manager of the stablecoin issuer.
• Since last month, Circle has adjusted the USDC reserve asset structure to protect the stablecoin from a potential US default.

Circle Internet Financial, a stablecoin issuer, has begun buying US Treasury bonds as part of its USDC reserve assets. During last month’s US debt ceiling strike, the company sold all US Treasury bonds.

CFO Jeremy Fox-Geen said on a conference call Wednesday that the Circle Reserve Fund (USDXX), managed by asset management giant BlackRock, has begun “directly holding US Treasury bonds”. Fox-Geen added that the fund would also keep repurchase agreements (repos) as part of its USDC reserves.

Circle CEO Jeremy Allaire said in a statement to Politico on May 10 that his stablecoin company no longer holds long-term US Treasury bonds. Specifically, the company will not hold Treasuries maturing after June 2023. Allaire explained the company’s reasoning by stating that it did not want to be exposed to the possibility of a US government default.

Since June, the reserve has moved all assets into a tripartite repo involving critical banks in the system, including Goldman Sachs, BNP Paribas, Bank of America, and Royal Bank of Canada.

Tether’s USDT and Circle’s USDC are the two largest stablecoins in circulation. In it, Circle backs its USDC stablecoin with various assets, including cash, cash equivalents, and Treasuries. According to data from January, about 65% of USDC reserves are made up of Treasury bills, meaning a significant amount of its reserves could be affected by default.

According to BlackRock’s website, Circle has added $2.2 billion in US Treasuries to the fund since June 20, while repurchase agreements account for about 90% of the fund’s reserve assets. Fox-Geen said the company also has $3.5 billion in bank deposits, of which “mostly, more than 90%” is deposited in BNY Mellon.

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