CRYPTO MOVERS AND PRICES
Crypto was mixed this morning with Solana (SOL) outperforming in the Top 10. BTC is back below 50,000 after making highs of roughly 51,000 yesterday.
Crypto Story of the Day
CENTRE Consortium, formed by Coinbase and Circle to launch the USDC Stablecoin, announced that it will change the reserves composition for USDC. We contrast the change with current disclosures published by Tether for USDt reserves.
The Consortium revealed that the reserves composition for USDC would consist entirely of “cash and short duration U.S. Treasuries.” The token, which is an Ethereum-based smart contract project, currently has a market cap of about USD 27 billion. The decision was said to be motivated by an aim to “[deepen] its commitment to transparency.”
Prior to May 2021, Circle claimed that every USDC issued was “backed by a dollar in a bank account,” implying that reserves were 100% USD cash. In July 2021, Grant Thornton published a report for the period ending May 28, 2021 showing that reserves were described as 61% cash, government obligation money market funds, and “securities with an original maturity less than or equal to 90 days.”
The report also listed 9% in Commercial Paper and 5% in Corporate Bonds. The value of the reserves at that time was roughly USD 22.2 billion.
Coinbase President and COO Emilie Choi tweeted Monday saying “the changes in the investment portfolio for USDC reserves began in May 2021 and will not extend past September.” After that period, Choi added that Circle “will ensure that the USDC investments revert back to a more conservative investment profile.”
According to Tether’s latest independent accountant’s report for the period ending June 30, 2021, 49% and 10% of the approximately USD 62.7 billion in reserve assets were described as “Commercial Paper and Certificates of Deposit” and “Cash & Bank Deposits,” respectively. In its earlier March report, Commercial Paper also made up 49% of reserves, while Secured Loans and Corporate Bonds, Funds, & Precious Metals made up about 12.5% and 10% respectively.
USDC's emphasis on being “backed one-to-one with USD” seems to be inviting a direct comparison to Tether, who has famously moved up the risk curve in their stablecoin asset mix. The former seems to be taking some form of loss leading approach to asset gathering, as the types of investment they’re allowing for their treasury are barely (if at all) keeping up with inflation.
While Tether has broadened their asset mix in an effort to target a higher margin business model, USDC appears to want to compete on counterparty risk to facilitate asset gathering.