Crypto values: USD Coin should be safer again

After the uncertainty caused by the announcement of the reserve holding for the stablecoin USD Coin (USDC), the Consortium Center behind it, to which the large crypto exchange Coinbase and the service provider Circle belong, is apparently trying to limit the damage.

All reserves of the second largest cryptocurrency stablecoin are to be reallocated into cash and short-term US government bonds.

Up until August, Coinbase had incorrectly described the coverage of the second-largest stablecoin with a volume of around 27 billion dollars on its website as being completely covered by dollars in a bank account.

In fact, a large part of the reserves consisted of short-term and long-term corporate bonds.

In the meantime, Coinbase President Emilie Choi had admitted that the description of the reserves by the company could have been clearer and that the statements on the website should have been updated more quickly.

However, the money flowed into a diversified portfolio for the first time in May 2021.

From September

the reserves should consist entirely of cash and short-term government bonds with a term of less than 90 days.

This is reported by the Bloomberg news agency.

According to Circle, USDC's reserves have no longer been held exclusively in cash since March 2020, before the company bought short-term US government bonds to accommodate the rapid growth in the volume of the coin, Bloomberg cited a spokesman for the consortium. In May 2021, the reserves were then expanded to a broader investment portfolio. With the renewed change, the promise is to guarantee that every owner of a USDC can exchange it for an actual dollar at any time.

Crypto fans have been hearing that Circle is addressing a problem that doesn't exist in the hopes of appearing more prudent than its competitors.

This is correct under normal market conditions, but in times of a run, massive exchanges can not only test the liquidity of the reserves, but also cause distortions in the short-term bond markets.

A few months ago, the rating agency Fitch criticized this fact with a view to stablecoins such as the largest with 64 billion dollars, Tether.

The American supervisory authorities are also eyeing the stablecoins, which have now reached a volume of almost 120 billion dollars, with suspicion regarding possible risks to financial stability.