Circle Shifts Treasury Reserves to Mitigate Risk of US Debt Default

• Circle has adjusted its treasury reserves to mitigate the risk of US debt defaults.
• The company is transitioning to short-dated US Treasurys to minimize debt exposure and reduce reliance on bank deposits.
• Tether’s market dominance has increased, with a circulation of $82 billion USDT.

Circle Adjusts Treasury Reserves

Stablecoin issuer Circle has reportedly adjusted its treasury reserves to mitigate the risk of US debt defaults amid the ongoing banking crisis in the United States. CEO Jeremy Allaire stated on May 10 that the company has altered the mix of reserves backing its USD Coin (USDC) by transitioning to short-dated US Treasurys.

Minimizing Debt Exposure

Circle no longer holds Treasuries with maturities beyond early June in order to minimize debt exposure. Allaire explains that the firm does not want „to carry exposure through a potential breach of the ability of the U.S. government to pay its debts.“ The Blackrock-managed Circle Reserve Fund reveals holdings maturing no later than May 31.

Debt Limit Debate

Treasury Secretary Janet Yellen recently indicated that the government would have to make „decisions“ if Congress fails to raise the federal debt limit. The $24 trillion Treasury market and global financial system could experience significant disruption if default were to occur. Currently, US President Joe Biden and Republicans are in disagreement over raising the $31.4 trillion borrowing limit.

Tether’s Market Dominance

Tether, another stablecoin issuer, claims that most of its reserves are invested in Treasury bills with an average maturity of fewer than 90 days according to a May 10 quarterly assurance report. Additionally, Tether is working “to take steps to reduce its reliance on pure bank deposits as a source of liquidity” according to their report . Over the past year, Circle’s USD Coin supply has been declining, dropping by 46% from its all-time high of $56 billion in June 2022 and leading it’s market share down from 28% last year 23%. In contrast, rival Tether’s market dominance has increased leading it’s circulation up from $51 billion last year up at $82 billion USDT (USDT).

Cross Chain Transfer Protocol

Notably, Circle recently launched a cross-chain transfer protocol for USDC via Ethereum and other EVM-compatible chains while maintaining it’s status as second largest stablecoin with a market cap at $30 billion despite turbulent times this year which saw their peg lost in March and leadiong withdrawals causing their market cap drop by over 25%.