How Circle Holds Its Reserves To Keep The USDC Correlation To The U.S. Dollar

USDC is the second largest stablecoin by market capitalization and it's distributed and managed by Circle.

Circle has a very simple way to hold its reserves, they own 80% of their reserves in U.S. treasury bonds and 20% in cash to have liquidity to pay its users if USDC is redeemed. Although U.S treasury bonds have to be redeemed to have access to liquid cash, these treasuries provide a way for the company to be very profitable with the interest rate these bonds give.

Circle does attestations every month to demonstrate that USDC is fully backed by Circle reserves. Right now Circle has 100 million more dollars in its reserves than USDC in circulation. 25.5 billion dollars of USDC are in circulation and 25.6 billion are in reserves according to Circle.

This is a very different approach to Tether, which claims to hold reserves in a number of different things that are not that clear. Circle is also a lot more transparent than Tether about their reserves, they are subjected also to third party assurances, to ensure users that they hold sufficient reserves.

USDC had problems when SVB defaulted and some funds became locked, this made the token deppeg, but Circle always paid it's users 1:1, never failing redemptions. This was a huge case of success, although USDC struggled a lot, it recovered in a fantastic way, putting a lot of trust in the system.

Stablecoins are a sensitive subject and sometimes it might be a gamble to trust on them, but USDC might be the most transparent and trusted centralized stablecoin.