What would happen to USDC reserves if Circle declares bankruptcy?
Circle, the issuer of USDC, experienced its "moon landing moment" with its initial public offering and subsequently the increase in the price of its shares little changed the stability of its main stablecoin, according to analysts from S&P Global to Decrypt.
S&P analysts were very careful not to use Circle and USDC interchangeably. The former is a publicly traded company and the latter is its main stablecoin, which is governed by smart contracts on blockchains including Ethereum and Solana.
And, if USDC works as intended, then its reserves would survive the collapse of its issuer. But that’s where uncertainty comes in, and why USDC lost a point in its stablecoin stability assessment in December.
Bankruptcy isolation means that certain assets—in this case, the reserves backing a stablecoin—are legally protected so that they cannot be used to satisfy corporate debts in the event of bankruptcy.
It is worth noting that Circle has not tried to hide this ambiguity from investors or USDC holders.