Matt Taibbi, a prominent writer and journalist, wrote a staunch article against investing in an altcoin project. Pointing out that Circle, behind the USDC pegged to the US dollar, is the only counterparty to the reserve funds, Taibbi explained that Circle’s reserve fund belongs to the company, not the coin holders. Taibbi explained that in the event of bankruptcy, customers will be treated as “general unsecured creditors.” He therefore believes that Circle could cause the same kind of market crash as Coinbase. Here are the details…
How protected are the holders of altcoin and stablecoin USDC?
Taibbi highlights some important red flags in her USDC registration statement. A quote in the registration statements says the shares can only be purchased by Circle Internet Financial. Taibbi considers such an item extremely unusual. He believes this could have dire consequences for USDC holders. According to the article in question, Circle becomes the sole counterparty to the fund. So, as a result, all the reserve funds belong to them.
Taibbi believes the issues surrounding the bankruptcy are the biggest dilemmas facing the entire cryptocurrency market. cryptocoin.com funds and loan platforms 3AC, Voyager and Celsius; has recently come to the fore with bankruptcy. In other words, given the events, whether USDC holders are at risk of bankruptcy or not is a very important issue.
According to Circle, its customers are protected by the country’s money transfer laws. But Taibbi points out that Circle is only regulated in states where licensing is required. Also, not every state sees cryptocurrency activity as a money transfer. Circle also did not disclose all positions of its reserves and how much value is stored in each position.
Is Circle at risk of bankruptcy?
There are alarming claims about Circle’s solvency. Many wonder how yield interest rates dropped from 10.75 percent to just 0.5 percent over a 12-month period. For many, the claim that Circle provides superior returns over traditional fixed-rate returns is no longer true. For example, the interest rate provided by the 3-year US Treasury Bill is currently at 3.14 percent.
Recently, Circle CEO Jeremy Allaire stated that Circle return is regulated and over-collateralised. That is, he responded to the concerns by stating that he had no issues. It also confirmed that Circle is in its strongest financial position ever. It’s worth mentioning, however, that Circle does not disclose all the locations of its reserves and how much value it stores in each location.
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