Circle adjusted USDC collateral in case of default on U.S. government debt

The issuer of the second most capitalized stablecoin USDC refused U.S. Treasury securities maturing after May 31

Circle has refused to back its reserves with U.S. Treasury securities maturing after May 31 because of concerns. Also Circle CEO Jeremy Allaire told Politico that the government could default on its debt. Stablecoin issuer USD Coin (USDC) has adjusted its provisioning in favor of short-term Treasury securities.

According to U.S. Treasury Secretary Janet Yellen, U.S. authorities may run out of cash to make payments by June 1. Because the national debt limit of $31.4 trillion is already exceeded. If the issue with the limit of the national debt will not be solved. Then the U.S. could face a debt default.

“We don’t want to bear the investment risk that could materialize if the U.S. government suddenly can’t pay its debts,” Allaire said.

Circle’s USDC is the second-largest Stablecoin by market capitalization. There are about 30.1 billion tokens in circulation. Data from the Circle Reserve Fund, which is managed by BlackRock,. And they show that the company does not hold U.S. government debt securities maturing later than May 31.

Our experts note that the issuer of the largest USDT stablecoin by capitalization, Tether, has invested most of its reserves in U.S. government debt securities. About 85% of all its reserves are held as liquid assets. And money in bank accounts, cash equivalents and other short-term instruments, among which U.S. Treasury bills occupy 76.5%.

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USA proposed to ban release of algorithmic stablecoins for two years

Creation of algorithmic stablecoins, working similarly to failed Terra USD coin, may become illegal

The U.S. Congress will consider a new bill to regulate cryptocurrencies. The bill could ban creation and issuance of algorithmic stablecoins for two years, Bloomberg reported. According to this document, the prohibition will apply to cryptocurrencies. Which are linked to prices of fiat currencies by another digital asset of the same issuer.

An example of such a cryptocurrency is stablecoin of failed project Terra UST. The collapse of this coin, supported by Luna token, began on May 8, 2022. On that day, UST lost its connection to USD after a one-time sale of tokens worth about $300 million. The collapse of this stablecoin led to billions of dollars in losses for ordinary investors.

The bill would also allow banks and nonbanks to issue their own stablecoins. And it would prohibit companies from pooling customer funds with company assets to protect consumers in case of company bankruptcy. The bill is currently in its drafting stage. Perhaps a vote on the bill will take place as early as next week, Bloomberg reports, citing unnamed sources.

Our experts note that the U.S. Congress continues to work actively to regulate cryptocurrency sector and increase control in this area.


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