Stablecoin issuer Circle Internet Financial, the firm behind the $30 billion USD Coin (USDC), has announced its decision to rebalance its reserve fund as a precautionary measure against the risk of a U.S. government debt default. In response to the uncertain economic climate, Circle has moved $8.7 billion to overnight repurchase agreements (repos) and cash, while ditching Treasury bills that mature beyond May 31. The move is intended to protect the USDC reserve and ensure its liquidity during times of market stress.
Circle’s reserve fund is managed by investment management giant BlackRock and has added overnight repo agreements involving banking giants such as BNP Paribas, Goldman Sachs, Barclays, and Royal Bank of Canada. Overnight repos are essentially short-term collateralized loans in which the borrower sells a security, such as U.S. Treasurys, for cash, and agrees to buy back the collateral the next day at a slightly higher price. In this case, institutional investors with surplus cash are parking their money with Wall Street dealers in need of funding.
In a statement, Circle emphasized that this shift to highly liquid assets has been underway for several months and is not solely a response to the ongoing discussions between U.S. lawmakers and President Joe Biden’s administration regarding the debt ceiling. Nevertheless, it is clear that Circle is taking proactive measures to safeguard its reserve fund and protect its users’ interests.
As part of this strategy, Circle’s fund has already divested itself of Treasurys maturing beyond May 31. Instead, the company is rotating its assets into cash or government repo transactions that exclude securities maturing within three days. The move is a smart one, given that U.S. Treasury Secretary Janet Yellen has warned that the Treasury Department is set to run out of cash by early June unless the debt limit is raised.
In conclusion, Circle’s decision to shift $8.7 billion to overnight repo agreements and cash is a clear indication of its commitment to protecting its users’ interests in the face of a potential U.S. government debt default. The move not only ensures the liquidity of the USDC reserve but also safeguards it against any market turbulence that may arise in the near future.
