Circle’s reserve fund opted to rotate all its holdings into tri-party repos involving systemically important banks like Goldman Sachs, BNP Paribas, Bank of America, and Royal Bank of Canada.
Stablecoin issuer Circle has made a strategic move by resuming the purchase of US Treasury bills as a reserve asset for its USD Coin (USDC) stablecoin. The fund, which is managed by asset management giant BlackRock Inc (NYSE: BLK), plays a crucial role in maintaining the stability and security of Circle’s USDC.
As reported by Coindesk, Circle’s Chief Financial Officer Jeremy Fox-Geen highlighted that Circle’s reserved fund has initiated the process of increasing its direct holdings of US Treasuries. According to Fox-Geen, in addition to direct Treasury holdings, the fund will have repurchase agreements (repos) as part of its reserves.
The decision to resume purchasing US Treasury bills underscores Circle’s commitment to ensuring the strength and reliability of its USDC stablecoin. US Treasury bills are typically viewed as safe and secure investments, as they are backed by the US government’s credit worthiness.
This move comes after Circle reportedly liquidated all its holdings last month. In early May, Circle’s CEO, Jeremy Allaire, announced that the company would not hold bonds maturing beyond the end of that month. This decision was likely driven by the uncertainty surrounding the U.S. debt ceiling standoff, which posed potential risks to the stability of financial markets.
Instead, Circle’s reserve fund opted to rotate all its holdings into tri-party repos involving systemically important banks like Goldman Sachs Group Inc (NYSE: GS), BNP Paribas SA (EPA: BNP), Bank of America Corp (NYSE: BAC), and Royal Bank of Canada (TSE: RY).
The rotation into tri-party repos allowed Circle to mitigate the potential impact of the debt ceiling issue on its reserve holdings. In simple terms, tri-party repos involve the sale of securities with an agreement to repurchase them later, and they provide a secure way to manage liquidity and optimize the use of assets. By engaging in tri-party repos with reputable banks, Circle ensured the safety and stability of its reserve assets during the uncertain period.
Circle Looks Ahead Following Stability
Fortunately, US lawmakers eventually reached a deal to increase the nation’s debt limit, averting a financial calamity. On June 3, President Joe Biden signed the legislation into law, providing relief and restoring confidence in financial markets. This resolution likely provided Circle with the necessary assurance to resume its normal operations and reevaluate its reserve holdings.
It is worth mentioning that Circle has made a significant addition to its fund by including $2.2 billion worth of US Treasury bills. According to data on BlackRock’s website, repos accounted for over 90% of the fund’s total assets, which totaled $24.7 billion.
next