Circle CFO response: 80% of reserve assets are treasury bonds and 20% cash
Original title: "How We Minimize Risk"
Author: Circle CFO, Jeremy Fox-Geen
Original source: Circle official website
Original compilation: 0x711, BlockBeats
This is the 4th article written by Circle Chief Financial Officer (CFO) Jeremy Fox-Geen on USDC's credibility and transparency. BlockBeats organizes and translates it as follows:
"Your money is safe." Every CEO of every financial institution in the world tells customers that. Until the moment it's no longer safe.
As I said in my previous article, all financial institutions have inherent risk. That's why society creates laws and regulations designed to make them safer and protect consumers. "Security" is a relative term, not absolute; risks are everywhere.
In addition to laws and regulations, financial institutions rely on their risk management capabilities. In fact, taking and managing risk is their business model (e.g. a bank that lends users money to lenders or funds its trading desk; an unregulated institution that takes risks that it controls).
"Our risk control capabilities are world-class," is another sentence that every CEO of every financial institution in the world will say, until the institution is stormed and customers can't get their money back.
USDC is different.
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Providing Sound Money on the Internet
Just as billions of people use the internet to exchange terabytes of data every day, we believe that one day billions of people will use the internet to exchange trillions of dollars of value almost instantly and for free.
This will benefit everyone by increasing asset efficiencies for billions of dollars (e.g. T+2 settlement time), lowering economic rents (e.g. 6% for cross-border remittances, 3% for credit card transactions), and accelerating innovation in financial services (such as long-tail asset markets on the chain) and financial inclusion (such as increasing the accessibility of wealth reserves), not to mention that programmable on-chain currencies can support cutting-edge business and financial forms. This will benefit Circle - we aspire to be part of the underlying infrastructure and trusted service provider in this new financial ecosystem.
But all of this can only happen if the underlying funding is sound -- sound, trustworthy, safe. And that can only come from minimizing risk.
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USDC reserve assets are protected by laws and regulations
When we first launched USDC, we had to convince regulators to regulate us. Today, Circle is regulated by state money transmission laws, and USDC is regulated as an electronic "stored value" facility. We abide by laws and regulations designed to protect consumers—the same laws and regulations that other major payments companies that serve hundreds of millions of end users and millions of businesses follow.
Currency circulation laws state that Circle has legal ownership of USDC reserves, but unlike banks, trading platforms, or unregulated institutions, it has no other equivalent rights. This is an important point.
USDC reserve assets are assets that belong to USDC holders, not Circle, and is completely stored in the designated independent account "designing interest considerations for USDC holders". Circle may not use USDC reserve assets for any other purpose. Unlike banks, trading platforms, or unregulated institutions, we cannot lend them out, we cannot borrow them, and we cannot use them to pay our bills.
In the event of the extreme stress of Circle's bankruptcy, the segregated USDC reserve should guarantee that USDC remains at par and redeemable, independent of Circle's creditors, and segregated from the bankruptcy estate under the protection afforded by state currency laws.
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Manage USDC reserve assets to minimize risk
All of the choices we make for holding USDC reserves are designed to minimize the risks for USDC holders, including counterparty risk (so that institutions holding USDC reserves can return them), market risk (to make it value does not fluctuate), operational risk (so that everything runs smoothly), and liquidity risk (so that they are always available on demand).
About 80% of USDC reserve assets are U.S. Treasury bills with maturities of 3 months or less. These are considered to be among the safest assets in the world, backed by the "full trust and credit endorsement" of the US government, which itself is backed by the world's largest economy. U.S. Treasuries have the deepest and most liquid market in the world, with stable prices and same-day redemptions. BlackRock buys U.S. Treasuries and keeps them with BNY Mellon—two of the world's largest, most trusted, and most resilient financial institutions.
About 20% of USDC reserve assets are stored in cash in the U.S. banking system, and partners include Silvergate, Signature Bank, and New York Community Bank. While most people (including us) consider cash in U.S. banks to be "safe," we also recognize that holding large amounts of cash at any bank presents counterparty and credit risk to that bank. Therefore, we consider bank creditworthiness and asset concentration to further reduce risk. In addition, we continue to expand bank partners and actively explore other methods to further reduce the bank risk of the cash portion of USDC reserve assets. As mentioned earlier, our long-term goal is to hold cash reserves directly at the Fed.
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