Stablecoin Issuers Adapt Strategies Amid US Debt Ceiling Crisis: Different Approaches Compared

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Financial markets have been rife with speculation surrounding the United States debt ceiling, and the potential for a U.S. debt default has led some stakeholders in the blockchain industry to revise their strategies. One such firm, stablecoin issuer Circle, has reportedly opted to adjust its reserves treasury in an effort to mitigate the risks of a debt default in the U.S.

According to a recent Politico newsletter, Circle CEO Jeremy Allaire stated that the company has revised the mix of reserves that back its USD Coin (USDC) by converting to short-dated U.S. Treasuries. The move comes as Circle aims to insulate itself from possible risks associated with holding Treasuries maturing beyond early June. Allaire said, “We don’t want to carry exposure through a potential breach of the ability of the U.S. government to pay its debts.”

Data from the Circle Reserve Fund, managed by Blackrock, shows that the firm’s current holdings will mature no later than May 31. This stands as a clear indication of the company’s strategy to avoid exposure to a potential U.S. debt crisis.

However, the debate surrounding the U.S. debt ceiling continues, with U.S. President Joe Biden and Republicans at loggerheads over whether to raise the $31.4 trillion borrowing limit. Treasury Secretary Janet Yellen has warned that the government may need to make critical “decisions” if Congress fails to act. The potential fallout from a U.S. debt default could send shockwaves through the $24 trillion Treasury market and disrupt the global financial system.

In contrast to Circle’s approach, rival stablecoin issuer Tether claims that a majority of its reserves are invested in Treasury Bills with an average maturity of fewer than 90 days. Tether’s quarterly assurance report from May 10 stated that the company is “working to take steps to reduce its reliance on pure bank deposits as a source of liquidity.”

Notably, USDC supply has experienced a 46% decline from its all-time high of $56 billion in June 2022, with its market share dropping to 23% and a current circulation of $30 billion. As a result, Tether has seen its market dominance rise to 62%, boasting an $82 billion circulation of USDT.

Just last month, Allaire attributed Circle’s dwindling market capitalization to America’s war on crypto and the looming banking crisis. As the debate over the debt ceiling continues, it appears that stablecoin issuers are taking various approaches to protect themselves in a world of increasing financial uncertainty.

Source: Cointelegraph

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