Circle Dials Back Risk in USDC Reserves Ahead of Going Public

Corporate debt is no longer good enough for Circle, the blockchain powerhouse.

That’s the upshot of a move Circle announced on Sunday as it unveiled a rebalancing of the reserves that support USDC, it’s widely used stablecoin. Circle, a peer-to-peer payment platform powered by blockchain technology, will now solely use cash and short-duration U.S. Treasury instruments instead of a mix of government and corporate bonds.

By committing to the lowest risk financial instruments on the planet, Circle is abruptly reversing direction in its reserve policy. In May, it expanded its pool beyond cash and cash equivalents to include unsecured corporate bonds and commercial paper, which are ultra-short term debt instruments. According to a July report, private sector debt accounted for 14% of the company’s reserves.

From Circle’s Reserve Account Report for May 2021

Yet last month, Circle announced it will become a listed company via a Special Purpose Acquisition Company, or SPAC, in the fourth quarter; it also intends to become a national commercial bank. Both moves will bring it under far greater scrutiny by the U.S. Federal Reserve and other regulators.

Coinbase, which collaborates with Circle in supporting USDC, was pleased with the decision. “This is the approach we want for USDC reserves,” tweeted Emilie Choi, the chief operating officer at the listed crypto exchange.