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In 2020, we witnessed a new phenomenon in the world of digital currencies: corporate treasuries buying bitcoin.
As inflation fears loom as a result of the unprecedented level of new dollar supply issued by the Federal Reserve, more and more corporations are opting to add bitcoin to their treasury reserves to protect themselves against a weakening dollar and increasing inflation.
Corporate cash reserves at non-financial US companies grew to a staggering $2.1 trillion by the end of Q2/2020, providing a record amount of cash (up 30% year-on-year) on corporate balance sheets that can be put to work or face losing value.
While bitcoin may still be too risky as a cash reserve for most treasurers, this new theme highlights the willingness of corporate treasuries to deal in digital currency as part of a wider financial industry trend that merges traditional functions in finance with crypto capital markets.
As a result, corporations are now also opening up to supporting digital dollar stablecoins, such as USDC, in their treasury operations for both payments and cash management.
Recent OCC guidance, including guidelines for how commercial banks are allowed to hold crypto assets on their balance sheet as well as the cash deposit reserves that back regulated US dollar stablecoins, such as USDC, has laid the groundwork for digital dollar stablecoins to become fully integrated into today’s corporate treasury operations. Most notably, in early January the OCC issued guidance that national banks in the United States could use dollar stablecoins as a payment system, including stablecoins on public blockchains, paving the way for accelerating adoption of USDC in the US financial system.
Stablecoins are price-stable digital currencies backed 1:1 by a fiat currency, such as the US dollar.
Unlike the dollars in a traditional bank account, however, digital dollar stablecoins can be exchanged and transferred over open public blockchains at the speed of the internet, around the world, with high levels of security, irreversibility and low cost.
Using a digital dollar stablecoin, such as USDC, makes sending digital dollars over the internet is as easy as sending an email.
Stablecoins combine the benefits of open, borderless cryptocurrency with the price stability of traditional sovereign currencies to make them prime candidates for the future of internet-based payments.
Today, the total market capitalization of the dollar-pegged stablecoin market exceeds $30 billion, according to data compiled by Messari, which highlights the popularity of this new type of digital currency.
USD Coin (USDC) is a fully reserved digital dollar stablecoin that enables individuals and businesses to store, send, and receive US dollars over the internet.
USDC is issued by regulated financial institutions and redeemable on a 1:1 basis for US dollars. All USDC reserve assets are subject to monthly attestation from global auditing firm, Grant Thornton LLP, providing the utmost level of transparency for all parties dealing in the stablecoin. USDC reserves are held with national banks and subject to the supervision and reporting requirements set forth by the US Treasury OCC.
USDC is global, transparent, programmable, liquid, and regulated, which has helped it to become a market-leading stablecoin with over $6.4 billion in circulation, growing by more than 1000% in the past 12 months, with over $300 billion processed in on-chain transactions.
What’s more, USDC holders can earn yield on their stablecoins by storing them in Circle Yield, generating up to 8%* APR.
The role of corporate treasury is to ensure a company’s financial success by managing the business’s payment flows and financial assets and risks.
Dollar stablecoins can facilitate corporate treasury management processes by providing a more streamlined and cost-efficient means to process payments, manage cash and liquidity, and gain exposure to the yield-generation opportunities being afforded by crypto capital markets.
USDC is now at the beginning stages of being adopted as an important reserve asset not only for small and large companies but even governments as well.
Treasury departments can use USDC to make and accept near-instantaneous, borderless digital dollar payments to and from counterparties across the globe. Each payment can be viewed in real-time on a public blockchain ledger, providing unprecedented insight into outgoing and incoming payment flows.
In combination with a Circle Account, companies that want to remain in digital dollars to support their treasury operations can also accept and make payments with existing payment rails that seamlessly settle into or convert out of USDC. Currently, Circle Account holders can accept and make payments using four traditional electronic payment rails, including credit cards, debit cards, domestic bank transfers and wire transfers.
Dollar stablecoins also alleviate counterparty settlement risk as blockchain-based value transfers are irreversible by nature. Using USDC, there is no need to wait on international payments that go through several intermediaries before settling. Instead, payments are near-instantaneous and can be viewed in real-time from initiation to settlement, with a transaction cost typically counted in pennies.
What’s more, dollar stablecoins can be used to make programmatic payments using Circle Payouts API and furthermore offer the potential for integration with smart contracts on public blockchains, which truly unleash the programmability of money.
For a treasury department that has to execute mass payouts on a monthly basis, the programmability enabled through Circle APIs provides the benefit of being able to streamline and automate regular payments. Payroll and paying regular suppliers can be entirely automated, making treasury operations more efficient while saving time and costs for the business, while extending global reach using stablecoins.
Dollar stablecoins can help to streamline cash and liquidity management and reduce costs.
The programmability of dollar stablecoins also provides benefits for cash and liquidity management.
For example, an incoming payment by a specific counterparty can trigger automated payments to sub-account wallets belonging to particular business units that deal with this counterparty. This would optimize internal cash flows and reduce the time spent on cash flow management that can be automatically directed by an API.
Moreover, corporate treasuries can also use USDC to earn above-average yields on unused working capital and cash reserves.
Circle’s High-Yield Accounts enable businesses to earn 4%* for open term USDC deposits, which can be withdrawn at any time (even on weekends). Additionally, businesses looking to park cash for a longer period of time can earn up to 7%* on the twelve-month fixed-term yield product. Interest is accrued daily and payouts occur monthly.
The High-Yield Accounts will be natively integrated into Circle Accounts, making them easily accessible for USDC holders.
“What we are providing with Circle and USDC is the financial technology stack for treasury departments that want to future-proof their operations in anticipation of the next generation of finance, which will be borderless, internet-native, and tech-driven.”
—Jeremy Allaire, Circle CEO
To help businesses adopt dollar stablecoins for their corporate treasury operations, Circle offers a suite of products.
The Circle Account is the starting point for businesses that want to implement USDC into their operations.
A Circle Account is essentially a digital dollar bank account that allows you to seamlessly convert US dollars into digital dollars (and vice versa) and enables you to make and accept payments in both USDC and connect bank to bank accounts in 80+ countries.
All assets held in a Circle Account are covered by an industry leading insurance policy to ensure fund security.
In addition, Circle offers a suite of APIs that enable corporate treasuries to improve their cash management operations and increase payment efficiency.
Payments enables businesses to accept payments from five different payment rails; crypto payments using USDC and fiat payments using card payments, bank wire transfers, SEN, and ACH - that settle automatically in USDC.
Payouts allows businesses to process mass payouts in either USDC or fiat currency globally. For corporate treasurers running global businesses, paying out employees, vendors, suppliers and more using the Payouts API can reduce manual processes and result in faster and cheaper settlement to the end recipient. Payouts can be made to bank accounts and digital wallets using USDC.
Accounts allows corporate treasures to create and manage multiple sub-account wallets to optimize businesses workflows. Representing your internal ledger with USDC allows you the flexibility to optimize your workflows while also reaping the benefits of blockchain infrastructure for global payments. Companies receive up-to-date insights into user accounts via real-time notifications, reporting, and transaction history.
The Circle Account empowers treasury departments to automate first-party payment flows between their own corporate bank accounts and their Circle account, as well as on-chain payment flows using USDC.
*Offering subject to business approval, geographical availability, and regulatory authorization, and there is no guarantee that the product will become available in a specific timeframe or to a specific customer or geography. Service offered through Circle International Bermuda Limited. It is anticipated that Circle International Bermuda Limited will enter into lending arrangements with one or more institutional borrowers, including Genesis Global Capital, LLC. You should carefully conduct your own investigations and analyses in connection with any participation in this product, including its objectives, risk factors, fees and expenses and the information set forth in these materials. All prospective participants in the products described herein are advised to consult with their legal, accounting and tax advisers regarding any potential participation. Additional information is available upon request. Rates are purely indicative and are subject to change pending availability, approval and market conditions.