Circle, the issuer of stablecoins, appears to have revamped its reserve treasury in a bid to reduce the risk of defaulting on US debt. Circle CEO Jeremy Allaire stated in a May 10 Politico newsletter that the company has changed the composition of the reserves underpinning the USD $1.00 Coin by switching to a short-dated US Treasury to avoid being caught in a potential US government default.
He stated that the company no longer has Treasuries that mature after early June to avoid debt exposure. “We don’t want to run the risk of a potential breach of the US government’s ability to pay its debts.”
Current assets in the Circle Reserve Fund managed by Blackrock have a maturity date of May 31 at the latest.
Treasury Secretary Janet Yellen said earlier this week that the government would be forced to make a “decision” if Congress did not raise the federal debt ceiling.
US President Joe Biden and Republicans are at odds over lifting the $31.4 trillion debt ceiling. If the government defaults on its debts, the $24 trillion Treasury market and global financial system will be shaken.
Tether, another stablecoin issuer, insists that most of its reserves are invested in Treasury Bills with an average maturity of less than 90 days. According to the quarterly assurance report issued on May 10, the company has “worked to reduce its dependence on pure bank deposits as a source of liquidity.”
USDC’s supply has declined over the past year, falling 46% since an all-time high of $56 billion in June 2022. As a result, its market share has fallen to 23%, with $30 billion in circulation. Tether, the competitor, benefited as its market dominance rose to 62% with $82 billion USDT in circulation.
In April, Allaire blamed America’s crypto war and impending banking crisis for the country’s declining market cap.