Bizarro world: Circle says Treasurys are now too risky for stablecoin reserves

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Bizarro world: Circle says Treasurys are now too risky for stablecoin reserves
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Bizarro world: Circle says Treasurys are now too risky for stablecoin reserves Cryptocurrencies

Stablecoin company Circle, which issues USDC, the second-largest U.S. dollar stablecoin by market cap, wants no part of the United States’ dodgy debt instruments, according to Zachary Warmbrodt, author of Politico’s Morning Money newsletter.

On Feb. 13, stablecoin issuer Paxos Trust announced it would stop issuing the Binance USD coin , the third largest stablecoin by market cap, following an order from the New York Department of Financial Services . The action by the New York regulator came hours after Paxos received a Wells notice from the SEC, which is used to tell companies that they are the target of an enforcement action. The notice informed Paxos that the SEC considers BUSD to be an unregistered security.

Circle wasn’t always skittish about U.S. debt. As recently as March 13, after U.S. regulators seized Silicon Valley Bank where some of their collateral was deposited, Circle provided details about the reserves backing USDC, indicating that 77% of the stablecoin was collateralized with short-dated U.S. Treasury Bills, “the most liquid assets in the world and direct obligations of the U.S. government.” Those obligations looked pretty good at the time.

Allaire took to Twitter soon afterward to share his reaction, which was largely positive. “It's an extraordinary moment for the future of the dollar in the world, and the future of currency on the internet,” he said. “While comprehensive, there are clearly open and challenging issues with the bill as proposed.”

“The major stablecoin issuers, Circle and Tether, have made a tremendous amount of money in terms of yield buying and holding U.S. treasuries,” Bhuvanagiri said. “It’s been a huge boon to their business.”

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