Stablecoin issuers have been under the radar over the quality of the reserves backing the tokens they issue. Circle Internet Financial LLC (Circle), the issuer of stablecoin USDC, has released its reserves report as of July 31, 2022. A bold transparency statement on Circle’s website states that: “The stablecoins we issue are built to a higher standard. That’s why USD Coin (USDC) is always redeemable 1:1 for U.S. dollars, and Euro Coin (EUROC) is always redeemable 1:1 for euros. Always”.
According to the report, the total USDC reserve assets were valued at US$54.6 billion compared to USDC of US$54.5 billion in circulation. The entire reserve assets consisted of US Treasury Securities worth US$ 42.3 billion and total cash deposits of US$12.2 billion. Circle’s USDC monthly reserve report for July 2022 was issued by Grant Thornton, a leading global accounting firm.
In their independent attestation dated August 24, 2022, Grant Thornton, states: “In our opinion, the Reserve Information in the accompanying USDC Reserve Report as of July 31, 2022 is fairly stated, based on the criteria set forth in the USDC Reserve Report, in all material respects”.
In more challenges faced by stablecoins, Neutrino USD (USDN), another algorithmic stablecoin, lost its peg against the US Dollar for the fourth time in 2022. The Waves token maintains USDN’s dollar peg. May 2022 saw the collapse of the Terra UST algorithmic stablecoin.
In mid-August 2022, an exploit on the Acala Network led to the stablecoin Acala USD (aUSD) losing its dollar peg. The stablecoin (aUSD) regained its dollar peg following a new burn scheme supported by the Acala community. This month has also witnessed another stablecoin, HUSD, losing its dollar peg. HUSD has since recovered its peg at the time of writing.
Attestations and audits are becoming part of the regular reports issued by crypto companies. According to Tether’s June 2022 Assurance Consolidated Reserves Report, the Group’s consolidated assets exceeded its consolidated liabilities. In August 2022, the crypto exchange Kraken shared its second proof of reserves audit. Kraken’s clients were enabled to confirm their crypto asset holdings with the exchange through an independent auditor.
Stablecoins are increasingly coming under the scrutiny of financial regulators. Financial regulators are exploring how stablecoins could complement existing monetary payment systems whilst assessing systemic and other risks.
Transparency of the asset reserves will likely remain a critical factor in determining the role of stablecoins within the crypto and financial markets.
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