- USDC has experienced a dip in circulating supply over the July 4th weekend.
- Recent events have cast doubt on the resilience of stablecoins.
- Circle has made strategic moves in response to challenges.
USDC has established itself as one of the most widely used stablecoins, serving as a reliable bridge between traditional fiat currencies and the world of cryptocurrencies. However, throughout the July 4 weekend, there was a noticeable decline in the circulating supply of the stablecoin.
USDC Supply Down by 38% Since January
According to data from CoinGecko, on June 30, the circulating supply of USDC stood at $27.9 billion, but within less than 48 hours, it dropped 2% to $27.3 billion.
Interestingly, this decline in supply is not an isolated event but rather part of a downward trend that has been ongoing since the beginning of the year. The total supply of USDC has decreased by a significant 38% since January 1st.
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USDC is one of the most widely used stablecoins within the decentralized finance ecosystem, trailing behind Tether’s USDT. Currently, it is deployed natively on 63 different chains, with most of its supply circulating on the Ethereum network.
Like many other stablecoins, USDC employs an over-collateralization approach, which means that it maintains more assets than necessary to uphold its value equivalent to the US dollar.
Circle’s Shift to Short-Term Bonds for USDC
Earlier this year, in March, the stablecoin experienced a brief depegging from the dollar, resulting from multiple crypto bank collapses. In response to potential liquidity concerns surrounding US Treasury bonds, Circle, the issuer of USDC, decided to shift towards short-term maturity bonds.
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A recent attestation report conducted by Deloitte, dated back to May of this year, reveals that US treasury securities constitute $11 billion of the total collateral backing held in Circle’s reserve fund for USDC.
Additionally, there are approximately $13.1 billion in US Treasury repurchase agreements and slightly over $2 billion in cash reserves within the company’s fund. Moreover, regulated financial institutions hold an additional $2 billion in assets.
On the Flipside
- While USDC’s circulating supply did experience a decline, such fluctuations are not uncommon in the volatile cryptocurrency market.
- The decrease in the total supply of USDC since the start of the year indicates a shift in investor preferences toward other stablecoins.
- The shift towards short-term maturity bonds as a response to liquidity concerns might present its own risks, as changes in the interest rate environment could impact the overall stability and value of USDC.
Why This Matters
The decline in the circulating supply of USDC, one of the leading stablecoins in the decentralized finance ecosystem, highlights the ongoing challenges and complexities faced by stablecoins in maintaining their peg to the US dollar.
To learn more about the increasing demand for US dollar-backed stablecoins in Asia, read here:
Circle (USDC) Eyes Asia’s Growing Demand for US Dollar-Backed Stablecoins
For insights into the groundbreaking stablecoin legislation signed by King Charles III, click here:
King Charles III Signs Groundbreaking Stablecoin Legislation
FAQs
USDC, short for USD Coin, is a stablecoin that is designed to maintain a value equivalent to the US dollar. It is an ERC-20 token built on the Ethereum blockchain and serves as a digital representation of the US dollar.
The primary goal of USDC is to remain pegged to the US dollar at a 1:1 ratio. The intention is to provide stability and predictability in its value, offering users a reliable digital asset that reflects the worth of the US dollar.
While USDC strives to maintain its value at $1, it is important to note that no investment or financial asset is entirely risk-free. External factors, market conditions, or unforeseen events may impact the stability of any digital asset, including USDC. However, USDC’s design as a stablecoin and its over-collateralization mechanism is intended to mitigate such risks and minimize the chances of significant value fluctuations.
USDC is not mined like other cryptocurrencies, such as Bitcoin. The supply of USDC is not created through a process of mining or proof-of-work. Instead, it is issued by regulated financial institutions, with Circle being one of the primary issuers. The process involves converting US dollars into USDC tokens, which are then made available for use on supported blockchain networks.
