Circle Reduces U.S. Debt Default Risk with Treasury Modifications
• Circle has adjusted its reserve treasury to reduce the risks of U.S. debt defaults by switching to short-dated U.S. Treasuries maturing no later than early June.
• The USDC supply has dwindled, leading to a decline in market share to 23%, while Tether’s market dominance has risen to 62%.
• Treasury Secretary Janet Yellen revealed that the government may be compelled to make “decisions” if Congress fails to raise the federal debt limit, which could lead to a default on its debts.
Circle Adjusting Reserves To Avoid Debt Exposure
Stablecoin issuer Circle has reportedly modified its reserves treasury in an effort to mitigate the risks of potential United States debt defaults. According to a recent Politico newsletter released on May 10th, Circle CEO Jeremy Allaire disclosed that the company had altered the composition of reserves supporting its USD Coin (USDC). This includes no longer holding Treasuries that mature beyond early June in order to avoid exposure and risk.
USDC Supply Declines; Market Share Down 23%
Over the past year, USDC supply has dwindled, falling by 46% since its all-time high of $56 billion in June 2022 and leading to a decrease in market share down to 23%. On the other hand, competitor Tether (USDT) has seen its market dominance rise up 62%, with a circulation of $82 billion USDT currently circulating.
Debt Limit Debate Between Biden and Republicans
Meanwhile, President Joe Biden and Republicans are currently at odds over increasing the $31.4 trillion federal borrowing limit as Treasury Secretary Janet Yellen revealed that decisions may have to be made if Congress fails reach an agreement and raises it accordingly. If this happens, it would result in a significant impact on both the $24 trillion Treasury market and global financial system should a default occur.
Circle’s Mitigation Measure Not Enough?
Circle’s move towards short-dated U.S Treasurys may not be enough however as some analysts suggest that it doesn’t completely eliminate their exposure due their large liquidity pools and capital investments across various markets such as equities or commodities – all which could be impacted by any form of debt crisis or defaults within U.S bonds assets or currencies held by Circle itself as part of their reserve treasury holdings – exposing them potentially further again when it comes down their risk management strategies for stablecoins such as USDC which is used by many institutional investors today worldwide..
In conclusion, Circle appears to be taking preventative measures against potential debtdefaults occurring from upcoming debates between President Joe Biden and Congressional Republicans over raising federal borrowing limits – adjusting their reserve treasuries accordingly by divesting treasuries maturing after early June 2021 – yet this does not necessarily remove all exposure for Circle moving forward due investments across multiple asset classes outside of just Treasuries alone being held within their reserves treasury portfolio holdings..