Stablecoin operator Circle pads up cash reserves ahead of US SPAC listing

Singapore

AS the first operator of a stablecoin planning to list on the New York Stock Exchange via a US$4.5 billion blank-cheque deal, eyes are on US-based Circle and how it would fortify its cash reserves as it heads to the regulated public stock markets.

The move comes as the use of stablecoins has surged rapidly on the back of a booming crypto market, and US regulators are starting to worry about whether these firms hold enough liquid assets to back up the value of the currency they issue. 

US regulatory officials have signalled a desire to tighten regulation of stablecoins such as market leader Tether’s USDT and Circle’s USDC.

Besides cash and short-term Treasury bonds — which are considered safer and easy to redeem — issuers of stablecoins have at least until recently held reserve assets like unsecured debt in corporations. These are riskier and harder to quickly turn into cash, especially in times of financial turmoil. 

Circle is trying to address this issue. In its financial and operational transparency report in August, the payments technology company allocated up to 92 per cent – or US$25.3 billion – of its reserves in cash and cash equivalents as at Aug 31, up from 47 per cent – or US$13 billion – a month prior. 

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In July, Circle recorded that US$4.5 billion, or 16 per cent, of its reserves, were held as unsecured debt obligations of corporations and financial institutions with a maturity of less than or equal to three years. This has now dropped to US$0.4 billion, or 1 per cent as at Aug 31. The company has just since July started publishing the breakdown of its reserves.

“USDC is fully backed by cash and equivalents and short-duration US Treasuries so that it is always redeemable 1:1 for US dollars. Each month, we publish attestation reports by Grant Thornton regarding the reserve balances backing USDC,” Circle said on its website.

USDC debuted in 2018 as part of a venture called Centre, a consortium comprising Circle and Nasdaq-listed exchange Coinbase. Circle claims its USD Coin represents a “major breakthrough” in the way people use money, and are “cheaper and more secure than existing payment systems”. 

Stablecoins serve as a bridge of sorts between cryptocurrency markets and the traditional economy.

In this case, the value of USDC is “pegged” one-to-one to the United States dollar. The idea is to make it easier for people holding cryptocurrency — which is known for its frequent price swings — to manage volatility in prices and hop between the thousands of different crypto coins.

It does seem that more are warming up to the idea of stablecoins, and in turn, Circle’s USD Coin. Global circulation of USDC has grown to about US$32.4 billion as of Oct 20, up 725 per cent this year, according to CoinGecko. It now accounts for about 24.8 per cent of the stablecoin market, second only to market leader tether. 

Circle adds that hundreds of companies, products and services support the USDC standard, including digital wallets, exchanges, DeFi (decentralised finance) protocols, savings, lending and payment services. Traditional players such as Visa and Mastercard have partnered with Circle to use the USD coin to settle transactions; while finance data aggregator Plaid is working with Circle to allow people to move money easily from their bank and into USDC.

When asked by BT, a Circle spokesperson would only say that the company is committed to building a “regional centre” in Singapore and plans to hire a local team to build up a platform in the city-state.

For all our coverage of the Singapore FinTech Festival 2021, go to bt.sg/sff2021.