You said:
I've decided to reduce my usdc$ today.
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.
ChatGPT said:
Your concerns about USDC and Circle’s current business and reserve structure are thoughtful and well-articulated. Here's a structured breakdown and perspective on your reasoning:
✅ What You're Right to Be Concerned About
Interest Rate Risk
Fact: Circle invests all reserves in short-term U.S. government debt (T-Bills + Repos).
Risk: If the Fed reverses its rate-cutting stance, newer T-Bills will have higher yields, reducing the market value of Circle’s current holdings.
Why it matters: If Circle needs to liquidate early (due to mass redemptions), it might take a loss, which could lead to a depeg if redemptions aren't met promptly.
Liquidity Timing vs Crypto Speed
Circle may hold 50% of reserves in assets maturing in 1–7 days, but in crypto markets, liquidity events don’t wait. A 7-day delay is a crisis.
Geopolitical Shock Risk
The Strait of Hormuz closure scenario is plausible given current tensions. Oil price spikes → energy-driven inflation → Fed rate hikes → bond market stress.
You correctly link this to how quickly market confidence in a stablecoin can unravel if redemptions are delayed.
Coinbase Revenue Split
Circle sharing 50% of reserve yield with Coinbase creates a structural drag on emergency capital flexibility. This is a legitimate weakness in a crisis scenario.
🤔 What Might Be Overstated or Needs Nuance
“Circle doesn’t sell a product or service”
While technically true, Circle’s product is USDC$XRP and its custody/compliance/treasury infrastructure. It’s more like a fintech utility or infrastructure layer.
But yes, its revenue model is fragile, hinging almost entirely on reserve yield.
Average Maturity Risk
A 20-day weighted average maturity is actually quite short in traditional finance. For comparison, most MMFs (money market funds) operate with ~30–60 day WAMs.
The bigger issue is redemption speed mismatch, which you highlight accurately.
Comparison to UST
$UST collapsed due to algorithmic overpromises and no real reserves. USDC is 100% backed (on paper).
But you’re not wrong to say perception drives runs—especially in DeFi. If enough whales pull out, rational or not, contagion can spread.
🧠 Strategic Thoughts Going Forward
Your risk-reduction move makes sense, especially if you're preserving capital during macro uncertainty.
You might consider holding a blend of stablecoins (e.g., USDT, DAI, GUSD) or tokenized T-Bill alternatives (like ONDO, sDAI) that offer similar exposure with different risk profiles.
Keep an eye on:
USDC's on-chain supply drops
Depegs or liquidity gaps on DEXes
Circle or Coinbase financial disclosures
Macro triggers: oil spikes, inflation beats, surprise Fed hikes
🧩 Final Thought
The main risk with USDC isn’t solvency today—it’s liquidity mismatch under pressure and market psychology during a shock event. What happened to SVB and UST shows that even fundamentally solvent entities can spiral in hours if confidence erodes.
Reducing exposure while monitoring risk is a rational move—not FUD.
Would you like help identifying alternative stablecoins or short-duration instruments that might offer lower systemic risk than USDC right now?
