Stablecoin Comparison: What are the similarities and differences between USDC's asset composition and USDT's first announcement

Editor of this issue | Colin Wu

Editor of this issue | Colin Wu

On July 20, the stablecoin project USDC released its asset verification [report](1) for May. In this report, for the first time, the assets supporting USDC were subdivided like [Tether](2). As a company registered and operating in the United States, USDC basically provides an asset verification report every month. Compared with Tether, whose office is unknown and whose founder and chief financial officer have been kept mysterious, USDC is generally considered to be more for transparency and security. So, what are the similarities and differences between the asset composition behind USDC and Tether?

1 The difference between attestation and audit

First of all, it needs to be explained that accounting firms provide attestation rather than audit services for USDC and Tether. Compared with formal audits, asset verification is not so strict, and the source of funds will not be investigated in detail. According to the [report](3) provided by the New York Prosecutor’s Office, on September 15, 2017, Bitfinex transferred USD 382 million to Tether. After the audit firm Friedman LLC completed asset verification, Tether transferred the funds back, indicating that Tether did not There was not enough reserve funds and Bitfinex funds had to be misappropriated.

Generally speaking, asset verification occurs after the audit, which is the verification of the audit results. For a company with a good audit history, asset verification is faster and sufficient to generate public trust. However, none of the companies that currently provide stablecoins have provided audit reports. This may be determined by the rapid development of the stablecoin industry itself. After all, auditing is time-consuming and labor-intensive, and the cryptocurrency industry is developing rapidly every day.

The company that provides asset verification for USDC is the accounting firm GRANT THORNTON LLP. Although it is not ranked among the top four in the world like the "Big Four", according to Wikipedia, GRANT THORNTON is the sixth largest accounting firm in the world; for Tether The asset verification company is Moore Cayman, an accounting firm in the Cayman Islands. The parent company is Moore Global, which is not ranked among the top ten in the world. Therefore, USDC is more rigorous than Tether in terms of accounting firms.

2Comparison of asset composition between USDC and USDT

In USDC's asset verification report, 61% of its assets are "cash and cash equivalents", and in the composition of USDT, this part is 75.85%.

According to U.S. GAAP, "cash and cash equivalents" refers to cash and those assets with similar liquidity to cash, including U.S. Treasury bonds, bank certificates of deposit, acceptances, corporate notes, and currency funds.

For the "cash and cash equivalents" held by Tether, Tether has further broken down, 65.39% of which are company commercial papers, and only 3.87% are cash.

As for the "cash and cash equivalents" held by USDC, the capital verification report released by Circle did not subdivide it. Therefore, the outside world has no way of knowing how much of USDC's reserves are cash. And in the breakdown of its total assets, 9% is commercial paper, so what is its cash equivalent?

According to the notes in the report, the cash equivalent of USDC is an asset that matures within 90 days of the US GAAP. In addition to "cash and cash equivalents", it also separately lists bank deposit certificates due within 13 months, government bonds due within three years, and corporate business bonds due between 91 days and 13 months. It can be seen that USDC distinguishes the company’s commercial papers held. Those that expire within 90 days are classified as cash equivalents, and those that mature beyond 90 days are listed separately.

From this, it can be speculated that, like tether, USDC’s asset composition includes commercial paper that matures within 90 days. As for the specific amount, since the issuance speed of USDC this year is no less than that of USDT, it can be roughly speculated that it has adopted a method similar to Tether’s. Issue strategy, so short-term commercial bills may account for a considerable proportion of its cash equivalents.

3USDC will go further towards transparency

On the 8th of this month, the founder of Circle, Jeremy Allaire [expressed](4) on Twitter that Circle will become the most open, transparent and fully-reserved stablecoin project in the world. Judging from the announcement of the asset verification report, the transparency of USDC asset composition is currently not as good as Tether, but this is definitely only a temporary phenomenon.

Circle plans to go public in the fourth quarter of this year. According to regulatory requirements, it must disclose more detailed financial information to the outside world. Although by going public through a SPAC, Circle can avoid the tedious work of providing the [S-1 form](5) to the SEC, but after the listing, it still needs to regularly publish financial statements to the public, and its asset composition will be clearer by then.

And more openness and transparency will be an inevitable trend for the long-term development of stablecoin projects. On July 19, U.S. Treasury Secretary Yellen convened a meeting with the heads of the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Commission to discuss matters related to stablecoins. It can be seen that the regulation of stablecoins has been put on the agenda. For USDC, being more open and transparent is not only the need for the development of the company, but also the need for the development of the entire cryptocurrency industry. (Head image from greeneryfinancial)

[1]:https://www.centre.io/hubfs/pdfs/attestation/Grant-Thorton_circle_usdc_reserves_07162021.pdf

[2]:https://tether.to/wp-content/uploads/2021/05/tether-march-31-2021-reserves-breakdown.pdf

[3]:https://ag.ny.gov/sites/default/files/2021.02.17_-_settlement_agreement_-_execution_version.b-t_signed-c2_oag_signed.pdf

[4]:https://twitter.com/jerallaire/status/1413122371230257154

[5]:https://www.sec.gov/files/forms-1.pdf