A new change has been made to how USD Coin’s reserves are backed, now consisting of only cash and US Treasury bonds.
The USDC reserve will now be held entirely in short duration US Treasury bonds and cash, Circle said in a blog post, mindful of community sentiment, our commitment to trust and transparency, and the evolving regulatory environment.
As a result, Grant Thornton’s attestation reports will include this information in the future. Quick implementation of the changes is being made.
It was long claimed that USD Coin, a stablecoin from Circle, was backed by actual dollars in a bank account.
Circle revealed in July that this no longer held true after the auditor Grant Thornton provided an “attestation” indicating that USD Coin’s reserves constituted just over 60% in cash. Another 40% of the bonds were backed by various forms of debt securities.
Reserves are an important part of a stablecoin. These cryptocurrencies differ from others because they are pegged to an existing currency, such as the dollar or the euro. This is to avoid the volatility often associated with bitcoin and other crypto assets.
On Sunday, Circle, and Coinbase, the firm responsible for creating the stablecoin, unveiled a major change to the stablecoin.
The importance of it
Stablecoins can be used to buy or sell digital currencies instead of a bank, which is a popular choice among crypto traders.
With coins worth $27 billion, USD Coin is the world’s second-largest stablecoin.
Regulatory watchdogs are critical of Tether, the world’s largest stablecoin by market value since they fear the peg it has to the dollar isn’t adequately backed. It has $75 billion in circulation.
Recently, the issuer of the cryptocurrency stated that only 2.9% of its reserves were stored in cash. Commercial paper is an unsecured, short-term debt that carries a higher risk than government bonds. It comprises the vast majority of its reserves.
Tether tokens have been redeemed in mass amounts in recent weeks, resulting in fears that the short-term credit markets could be negatively affected.
Fed officials mentioned that stablecoins should be regulated, as they could threaten financial stability.
Jerome Powell, the chairman of America’s Apex bank disclosed in the past that a U.S. central bank digital currency could eliminate the requirement for crypto-assets and stablecoins like USDC and Tether