In a recent interview on CNBC’s “Crypto World” show, Jeremy Allaire, the Co-Founder, Chairman, and CEO of Circle Internet Financial, the issuer of fiat-backed stablecoin USD Coin ($USDC), talked about his firm’s long-term goal.
According to a report by The Daily Hodl, Allaire told CNBC technology reporter Kate Rooney:
“We want to be a full reserve digital currency bank. We’d like a framework for that to exist. We’d like to apply for that license if such a license was available… We think the world needs a full reserve banking system. We think the world needs much safer base layer money and that’s what stablecoins represent. And so if that becomes something that say the Federal Reserve supervised, and we were sort of chartered and operated in that way and have the amount of supervision that goes with that, that’s absolutely something we will do.“
On July 3, the Circle CEO explained why holders of its fiat-collateralized and fiat-pegged stablecoin USD Coin (USDC) should not be worried (in the aftermath of the Terra ecosystem collapse).
As Circle’s Chief Financial Officer Jeremy Fox-Geen stated in a blog post (titled “USDC Trust and Transparency — Liquidity Matters”) published on June 13, “institutions that provide borrowing and lending services are inherently risky” since “they take credit risk (borrowers might not pay back loans), market risk (collateral securing a loan might fall in value), duration risk (the mismatch between longer-term loans and shorter-term deposits), among other risks.” Furthermore, they are “typically highly leveraged (fractionally reserved not fully reserved),” he said.
The Circle CFO went on to say that “these risks combine to create significant liquidity risk – the risk that the institution is unable to pay back its depositors upon demand and its debts when due,” which is why he believes that “robust regulation of financial institutions is a very good thing.” Fortunately, Circle is “a regulated financial institution, issuing USDC under US state money transmission laws, and is subject to the oversight of state banking supervisors, among others.”
He then went on to talk about USDC’s liquidity:
- “USDC is always redeemable 1 for 1 for US dollars. Any amount. Always. Period. We can make this assertion confidently because USDC is fully reserved with short-dated US Treasuries (~80%) and cash (~20%), denominated in US dollars, and held directly with leading US financial institutions and custodians within the US regulatory perimeter.“
- “The USDC reserve does not contain any other high risk, less liquid assets such as digital assets, private or public equity, loans secured or unsecured, commercial paper of any kind or credit rating, assets denominated in currencies other than US dollars, or assets held with third parties subject to lock-ups or other restrictions upon liquidity.“
Anyway, here is what the Circle CEO said on Twitter on July 3:
- “With so many firms facing fundamental challenges and risks, Circle has amped up our own information about Circle and USDC. Sharing it here so it’s fresh for people to review. We started publishing these in the days following the Terra collapse.“
- “It’s understandable why some users would be paranoid given the history of hucksters in crypto. We have always tried to hold ourselves to the highest standards afford to us. That’s enabled us to work with regulators, top-tier assurance firms, and leading FIs.“
- “There is also some obvious confusion between USDC reserves — which are regulated (where and what we can hold), examined (by regulators and assurance firms), and transparent (weekly flows and composition) — and USDC that itself is used in lending markets, away from Circle.“
- “On the last point re: Circle Yield, we will share a blog post this week, but the essence is that because Circle Yield is regulated, over-collateralized, offered as a security to only accredited investors, and has a very conservative UW approach, we have had zero issues.“
- “Circle is in the strongest position it has ever been in financially, and we will continue to increase our transparency. FWIW, we are also encouraged by emerging regulatory frameworks for stablecoin issuers, which should help further increase confidence in issuers like Circle.“