Circle increases stake in US Treasury bills amid US default risk

The issuer USD Coin (USDC) Circle has revised the collateral structure of the stablecoin in favour of short T-Bill to mitigate potential technical default risk in the United States. This was stated by Circle’s CEO Jeremy Allaire, according to Bloomberg.

The situation has intensified amid a lack of progress on raising the US debt ceiling. A meeting between leaders of both parties in the House and Senate with President Joe Biden proved unproductive.

The US Treasury’s funds could run out by June 1, 2023.

According to Allaire, Circle has disposed of securities maturing after early June. The company does not want to expose itself to the risk of ‘the US government’s potential default on its debt obligations’.

According to the latest data, the current treasuries on Circle’s balance sheet mature no later than May 31.

In the last six months, the aggregate market value of USDC has fallen by 31.7% — from $44.1 billion to $30.1 billion, according to CoinGecko.

In April 2023, Allaire described regulatory actions against crypto firms as the main factor behind the stablecoin’s capitalization.

Beyond stringent regulatory measures, the banking crisis also affected Circle’s stake in loss-stricken SVB, which accounted for about 8% of the total cash reserves underpinning USDC’s value.

On March 11, amid the collapse of the institution, the stablecoin temporarily lost its peg to the US dollar. Later Circle stated that the issues with the asset’s banking backing were resolved.

Earlier, Circlelaunched a solution for transfers of USDC between Ethereum and Avalanche.