I hope I'm wrong, but there are some concerning signs around it.
My concerns about $USDC .
$USDC is the second largest stablecoin and is known as the most regulated and compliant in the space.
Over the past year, the circulating supply has doubled, from $30B in June 2024 to $60B today.
A +100% growth in just one year.
$USDC is issued by @Circle USDC , which recently went public and saw its stock surge +160% after the IPO.
Everyone’s talking about it, and on the surface, things seem to be going great for Circle.
But I have concerns that led me to reduce my exposure.
Here’s the thing: Circle doesn’t sell a product or service.
Its only source of revenue is from investing the dollars users deposit (to mint USDC) into U.S. Treasury instruments, 50% in Treasury Debt, 50% in Repurchase Agreements.
So, 100% of Circle’s assets are tied to interest-bearing U.S. government debt.
This model works well as long as the Fed keeps lowering interest rates, which it has been doing for over a year, because when rates fall, the value of older T-Bills goes up.
But if rates rise again, new T-Bills will offer higher yields, making older ones less valuable.
That would lead to a drop in the market value of the bonds Circle holds.
Given the current war climate and inflation risks, a rate increase is very likely.
One major concern is the potential closure of the Strait of Hormuz due to escalating tensions in the Middle East.
40% of global oil passes through it.
If it’s blocked, energy prices could skyrocket, and in the U.S., inflation has always followed energy prices.
The Fed’s only weapon against inflation? Raising rates.
If that happens, Circle could be stuck holding older T-Bills that have lost significant value on the secondary market.
In theory, that’s fine, as long as Circle can hold them to maturity, they won’t lose money.
But in crypto, things move fast.
If USDC redemptions are delayed because Circle has to wait for bonds to mature, it could trigger a panic. A major depeg can happen in hours, especially with money markets and opportunists accelerating the collapse, like what happened with $UST.And here’s the kicker: Coinbase takes 50% of Circle’s residual USDC reserve revenue.
That means even in a crisis, Circle is contractually obligated to give away half of its revenue, potentially limiting their ability to respond quickly to a redemption wave.
The core issue I see is this: Circle has put all its eggs in one basket, with 100% of reserves in U.S. Treasury exposure.
Given current global instability, I believe Circle should diversify, both to protect its yield and reduce systemic risk.
Yes, it's somewhat reassuring that the average maturity of their T-Bills is short, around 20 days, with 50% maturing in 1 to 7 days.
But in crypto, 20 days is an eternity. If a storm hits, Circle could be forced to sell at a loss before maturity. That risk shouldn’t be ignored.
