Circle Unveils USDC Reserves & Mastercard Pilot Program



In a world increasingly reliant on digital assets, stablecoins have seen their utility skyrocket.  A mere two years ago, Tether (USDT) dominated this niche with little to no competition.  Looking at stablecoins in 2021 paints a different picture however, as impressive rivals such as Circle’s USD Coin (USDC) continue to steal market share through transparency and strategic partnerships.

Asset Backing

As their name would imply, stablecoins are designed to offer investors the perks of a digital asset, while maintaining the low volatility of FIAT currencies like the US Dollar.  To achieve this, stablecoins are ‘pegged’ or ‘tethered’ to an underlying asset(s).

Over the years, various stablecoins have had the veracity of their claims surrounding asset backing questioned – and rightfully so.  As a result, companies like Circle now routinely release independent reports known as ‘reserve attestations’.  These reports are an effort to maintain full transparency in to a digital asset, allaying any fears investors may have surrounding a stablecoin.

In its most recent reserve attestation, Circle was found to have maintained a reserve ratio of 1:1 – meaning the total value of assets it holds in reserve equal the total amount of USDC in circulation.  The following is a full breakdown of how these reserves are allocated.

Total ($bn) Allocation (%)
Cash & Cash Equivalents 13.4 61%
Yankee CDs 2.9 13%
US Treasuries 2.7 12%
Commercial Paper 2.0 9%
Corporate Bonds 1.1 5%
Municipal Bonds $ US Agencies 0.1 0.2%
Total $22.2bn 100%

Crypto-to-Fiat

Its utility and transparency are only a couple of the reasons why USDC has seen massive growth over the past year.  Another is its ability to establish strategic partnerships with ‘big-name’ clients.  This was most recently highlighted when Circle announced a new pilot program with payment processing giant, Mastercard.

This program will see the pair of companies ‘use USDC to facilitate crypto-to-fiat conversions’.  In its announcement, Circle indicates that the purpose of these conversions is to establish ‘a means for card issuers to more easily settle payments to Mastercard, helping accelerate the world towards greater use of internet-native financial infrastructure’.

With this announcement, Circle now has dealings with two of the world’s largest payment processors, as it also entered in to a similar pilot program with VISA months ago.

Regulation

While USDC and its competitors are currently a pivotal part of the digital assets sector, their importance could soon be diminished with the rise of Central Bank Digital Currencies (CBDCs) and impending regulations.

Recently Treasury Secretary Janet Yellen, and Federal Reserve Chairman Jerome Powell, have each indicated that the U.S. needs to establish a ‘strong regulatory framework’ for stablecoins.  Each have cited potential dangers in their use due to insufficient asset reserves, and the facilitation of money-laundering.

Depending on what these future regulations look like, stablecoin usage may become too burdensome, pushing users towards use of the inevitable onslaught of CBDCs set to be launched in the coming years – assets which portend to boast much of the same benefits as stablecoins themselves.



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