USDC Stablecoin Issuer Circle Drops US Treasuries from Its $24 Billion Reserve Fund

Circle Internet Financial, the issuer of the second-largest stablecoin USD Coin (USDC) has recently ditched all US Treasury Bonds from part of its USDC reserves. This decision comes as part of the precautionary measure to insulate the company from a potential fallout that might occur from the US debt ceiling showdown.

Currently, global investment giant BlackRock is managing the Circle Reserve Fund As of May 30, the fund holds $24 billion of assets under management in overnight repurchase (repo) agreements.

This is a major change coming from Circle which was holding more than a staggering $30 billion in US Treasury Bonds by the end of April, as per the company’s monthly attestation. Also, the funds website shows that the last Treasury bond worth $4 billion among the fund’s holdings matured on Tuesday.

The latest move has the outcome of Circle’s attempt to protect its $29 billion USDC stablecoin from any sort of turbulence in the bond market as the US lawmakers have been scrambling to avoid the first government default.

Last month in early May, Circle CEO Jeremy Allaire had said that the company won’t be holding Treasury bonds maturing beyond the end of the month, in their reserves that back the value of USDC.

Additionally, Circle’s reserve fund has been replacing maturing bonds with overnight repurchase agreements throughout the month. “We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts,” he said.

Additionally, Circle also said last month that it’s “working to take steps to reduce its reliance on pure bank deposits as a source of liquidity”. On the other hand, circle’s biggest rival Tether recently claimed that a majority of its reserves have been invested in Treasury Bills having an average maturity period of less than 90 days.

Earlier this year, circle faced major headwinds following the collapse of two major crypto-friendly banks and the stablecoin issuer’s business with them. As a result, there’s were massive withdrawals for USDC from exchange which also led to the de-peg of the stablecoin from the US dollar. However, Circle managed to handle this situation well later.

On the other hand, the USDC supply has also been shrinking over the last year. Since hitting an all-time high of $56 billion in June 2022, the USDC supply has dropped by 46%.  This also caused the market share to fall 23% with a circulation of $30 billion. One of the biggest beneficiaries of Circle’s declining market has been riven Tether.