Just like with Tether, Circle’s USDC platform started out with great intentions. Tether set a very low bar for Circle USDC to beat. A legitimate stablecoin would provide traders with a safer place to store their money. USDC promised transparency and attestations, and they have provided monthly attestations for years, but transparency, not so much anymore.
Those attestations have shown that Circle’s USDC platform is unable to resist the temptation that Tether itself has exposed itself to, to play games with the reserves.
Let’s take a look at one the first available attestations for Circle’s USDC platform:
While the attestation is not an audit, it is at least something, and I’d trust this more than Tether’s “Deltec” attestation because I believe iFinex/Tether is a shareholder in Deltec.
This attestation does not leave much wiggle room with respect to their reserves, it’s strictly US dollars held in custody accounts. Quite simple and easy for everyone to understand.
In March of 2020, Circle USDC provided us with the February attestation. The attestation stated the following:
As you can see, there’s still no wiggle room. USDC is backed by USD in a bank account at US depository institutions. Still looks good to me.
However, after March 2020, when Bitcoin suddenly fell 40–50% during the Coronavirus panic, Circle USDC added some new ambiguous language and wiggle room. “Approved Investments”.
It’s a pretty neat coincidence that they’ve done this right after a massive crypto currency market crash.
It’s also a very neat coincidence that the issuance of USDC skyrockets over the next year with this language as well.
What are the approved investments? Surely it’s only US treasury bills and safe investments, right? The problem with that, if that was the case, they could just say Cash & Cash equivalents/Treasuries, like what Paxos is currently doing:
So clearly, “approved investments” is more than just treasuries and cash. We need to know what they are.
Jeremy Allaire was پوچھا about the “Approved Investments” on a Coindesk interview, unfortunately, he completely dodged the question and refused to answer it with anything resembling a straightforward answer.
Instead, Jeremy tells people wondering to “look at the laws” about what governs what money transmitters can invest reserves in.
Unfortunately, different states have different rules regarding what they can invest their reserves in, and some states have no restrictions at all. Circle has money transmitter licenses in multiple states, and in theory could just operate in the state with the least amount of restrictions.
So, this is a non-answer. Dodging questions about reserves should set off alarm bells, the same alarm bells that set me off about Tether.
Worst of all, he then states that if USDC was fractionally reserved like people are saying, “I’d be in jail”. This is one of his most alarming comments to me, because his competitor, Tether has literally been caught in a bank fraud/money laundering scandal where they handed nearly a billion dollars to a now indicted criminal enterprise currently being prosecuted, and has had former executives (Phil Potter), admit to bank fraud and money laundering, and so far, none of them are in jail, yet.
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