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Centre commits to Stablecoin transparency

PAR002_123 • Aug 28, 2021

Circle acts after increasing calls for stablecoin issuers to provide transparency in fast-growing crypto industry.



USD Coin, operated by Circle Internet Financial and offered on Coinbase's platform, had claimed that every coin was backed by one US dollar that was "in a bank account". Coinbase has since removed the promise from it's website that boosted confidence in the stablecoin and helped Circle amass $28 billion in assets. The promise that every USD Coin was backed by an actual US dollar turned out to be false after they revealed cash made up just over 60% of its reserves. 

In July Circle disclosed in an “attestation” from auditors Grant Thornton that cash made up just over 60% of USD Coin’s reserves. The other 40% was backed by various forms of commercial paper and corporate bonds which could experience losses and are less liquid than US dollars. That could lead to losses for its holders in the event that customers tried to redeem the stable coin en masse.

What constitutes a stablecoin’s reserves is important. 100% Collateralised Stablecoins like Denmarks e-Money stablecoins (eEUR / eCHF / eNOK / eSEK / eDKK) is what sets them apart from other cryptocurrencies. The fact they’re pegged to an existing currency like the euro and 100% backed by bank cash bank deposits avoids the volatility often found in bitcoin and other major cryptocurrencies.

e-Money.com is 100% Collateralised with bank deposits

 

Centre, a consortium that developed the stablecoin and was founded by Circle and crypto exchange Coinbase, unveiled the change and said it is “deepening its commitment to transparency” and “exploring new opportunities to collaborate with the community.”


Centre said in a blog post


“Mindful of community sentiment, our commitment to trust and transparency, and an evolving regulatory landscape, Circle, with the support of Centre and Coinbase, has announced that it will now hold the USDC reserve entirely in cash and short duration US Treasuries,”.... “These changes are being implemented expeditiously and will be reflected in future attestations by Grant Thornton.”


After several comments from policymakers about the inherent fragility of stablecoins, compounded with the upcoming Federal Reserve Jackson Hole meeting, there has been quite a bit of debate and discussion around the future of stablecoins in financial markets.


Stablecoins, stripped of the price volatility that so many link to bitcoin, is much more freely spent and used versus being held as part of an asset management plan. In other words, stablecoins can serve both as a bridge to broader crypto adoption as well as a functional alternative to fiat in the present.


As central bankers and other policymakers took a closer look at Global stablecoins and how they are actually becoming integrated into the global financial marketplace, the consensus is undergoing a dramatic shift.



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