The USD Coin (USDC) stablecoin issued by Circle has received a new characterization from the largest US crypto exchange Coinbase. This happened after the audit of the stablecoin, during which it turned out that not all of the company’s reserves to underpin the USDC are being held in cash.
At the same time, it was previously believed that each stablecoin coin was backed by «one dollar» to ensure its value. In this regard, representatives of the cryptocurrency community thought about comparing USDC with USDT, which is the main competitor for the Circle project.
Recall that stablecoins are called cryptocurrencies pegged to the value of the dollar, euro or other national currency. That is, 1 USDC or USDT can be exchanged for the corresponding amount of dollars – and there is no doubt about that.
We checked the actual data: today, the total capitalization of the stablecoin market is $ 113.26 billion. The niche leader is still Tether USDT with $ 64.77 billion. The second place is taken by USDC – it has 28 billion capitalization.
Now the distribution of forces between top projects may change. There was a small reason for this due to the audit.
What’s wrong with USDC?
Visitors to the Coinbase website can now see a new description of the stablecoin, which states that the project is «fully backed by reserve assets. » Here is a quote from the text on the site, published by the news outlet Cointelegraph.
Each USDC is backed by one dollar or an asset of equivalent fair value held in accounts with US regulated financial institutions.
At the same time, earlier on the site it was written that USDC is backed by dollars, which are in the company’s bank account. Naturally, the current description seems less attractive – especially for beginners who are not used to this particular feature of the digital asset niche.
Securing a stablecoin is perhaps the most important characteristic of the entire project. It is thanks to the security that investors can be sure that the market value of coins will always be equal to 1 dollar, and, in principle, there will be no problems with the exchange rate. Stablecoins themselves are a bridge between the cryptocurrency market and the inflow of capital into it from conventional currencies, so the image of such altcoins means a lot to almost all market players.
Circle was audited by Grant Horton. Its results showed that 61 percent of the reserves to back up a stablecoin are held in cash and cash equivalents, with 9 percent held in securities. These include certificates of deposit and US Treasury bonds, which are «not fully backed by the US dollar held in bank accounts. «
Coinbase spokesman Andrew Schmitt commented on the incident with the following quote.
Users can always exchange 1 USD Coin for 1 USD. We have added additional information to our website so that clients can learn more about USDC reserves.
So, in this case, the representatives of the cryptocurrency platform wanted exclusively to notify their own customers about this feature of the crypto project. They had no goal of influencing the reputation of USDC – although some of the platform’s clients will certainly be upset about this publication. However, the situation with Tether USDT is exactly the same: the coin is also not fully cash backed.
In general, the news itself did not cause almost any negative reaction from the market. USDC continues to occupy an important place in the stablecoin ecosystem right after Tether – the most popular project in this area. By the way, Tether itself has been criticized and suspected of insufficient supply of coins in the past, although all this did not prevent the increase in the value of Bitcoin in recent years.
We believe that the results of the Circle audit and the USDC project in particular will not affect the prospects for the development of the cryptocurrency industry. Firstly, companies can keep part of their reserves not in cash, but in securities or other similar investment instruments – accordingly, they do not break the law. Secondly, as the stablecoin grows, sooner or later you will have to face it. Still, the capitalization of USDC and USDT today is $ 63 and 27 billion, respectively, which is a lot of money. And keeping them in the bank in full would be at least inconvenient and ineffective. Therefore, this practice of large companies seems logical.