One of a series on USDC Trust and Transparency, by Circle’s CFO, Jeremy Fox-Geen.
Recent events have demonstrated several times, with the full force of the capital markets, the importance of strong risk management, and ample liquidity in particular, in order to help protect consumers and build ecosystem trust.
Institutions that provide borrowing and lending services are inherently risky. They take credit risk (borrowers might not pay back loans), market risk (collateral securing a loan might fall in value), duration risk (the mismatch between longer-term loans and shorter-term deposits), among other risks. Moreover, they are typically highly leveraged (fractionally reserved not fully reserved).
These risks combine to create significant liquidity risk - the risk that the institution is unable to pay back its depositors upon demand and its debts when due. Such institutions have a long history of runs, failures and insolvencies, which is why our communities over time have developed a robust financial regulatory framework to help protect consumers and build trust. Robust regulation of financial institutions is a very good thing.
Circle is a regulated financial institution, issuing USDC under US state money transmission laws, and is subject to the oversight of state banking supervisors, among others.
We can make this assertion confidently because USDC is fully reserved with short-dated US Treasuries (~80%) and cash (~20%), denominated in US dollars, and held directly with leading US financial institutions and custodians within the US regulatory perimeter. Short-duration US Treasuries are the safest, most price stable, most liquid assets available in the world - they have the highest credit rating and the deepest trading markets (trading over $650 billion each day).
The USDC reserve does not contain any other high risk, less liquid assets such as digital assets, private or public equity, loans secured or unsecured, commercial paper of any kind or credit rating, assets denominated in currencies other than US dollars, or assets held with third parties subject to lock-ups or other restrictions upon liquidity.
Over the last 1 week, 1 month, 3 months and 12 months (as of 9am EDT today), Circle has redeemed $3.5 billion, $17.7 billion, $50.7 billion, and $108.4 billion USDC for US dollars for Circle customers. We have issued a lot as well! We will soon add more analysis of liquidity and redemptions to our website disclosures to further enhance USDC transparency.
We manage the USDC reserve this way with the intent for USDC to be the most trusted, transparent dollar digital currency. Always redeemable 1 for 1 for US Dollars. Period.