The story of mistrust over stablecoins gains another chapter. After Tether (USDT) is accused of not having ballast and TerraUSD (UST) goes to zero, the target of the time is the second largest stablecoin on the market, the USD Coin (USDC).
According to a Twitter user, USDC would be on the verge of collapse as Circle could be losing about 5% a year in interest to banks, which would have totaled a loss of $500 million (R$ 2.6 billion) alone. in the first quarter of 2022. Following, it also accuses Circle, the company responsible for USDC, of making billionaire loans to companies that are in solvency problems, such as Celsius, BlockFi, Three Arrows Capital and others.
USDC Stablecoin Complaints
To explain their reasoning, the user using the username Geralt Davidson — obviously a false name — created an image to illustrate how stablecoin USDC could be on the brink of bankruptcy.
USDC-collapse Davidson notes that Circle has a partnership with Signature Bank to process USD deposits and withdrawals, also considered as conversions between USDC and USD stablecoin. Next, he accuses Circle of losing money to inflate USDC’s market value, currently equivalent to 55.7 billion dollars, due to interest rates applied by banks.
“Insider estimates are ~5% per year at current interest rates. […] Circle lost $500 million in the first quarter of 2021.”
Such market value can then be used by Signature and Silvergate banks to make loans to third parties, which brings us to the fourth point. As USDC depends on banks, they can work with fractional reserves, which, according to the whistleblower, encourages the growth of the stablecoin supply. Going further, it also points out that Circle has an offshore company in Bermuda to circumvent US laws. In this way, Circle would be lending money to high-risk lenders such as Genesis, BlockFi, Celsius, Three Arrows Capital and others.“Such creditors are having liquidity problems and many more are reported daily as it passes,” accuses Davidson. “Most of them owe huge amounts of USDC to Signature and Silvergate, as well as Circle itself.”
Due to this, Circle would have a default risk equivalent to 3 to 5 billion dollars (R$ 15.7 to 26.2 billion) linked to loans to some of these companies. Finally, Davidson points out that there is a risk of a bank run. Warning that if a small portion of customers tried to redeem their dollars together, Circle would not be able to honor the withdrawals.
Panic or truths?
To date, USDC is regarded as one of the most transparent stablecoins on the market. However, Gerald’s accusations are serious and have already attracted the attention of the community. Finally, he is also concerned about the low volume of USDC, about 9 times smaller than that of Tether, stating that this could be another sign that the issuance of tokens was happening “just because it has great incentives”. However, it is worth remembering that most of these volumes are made by market makers, so it is not a reliable metric. Finally, Circle has not yet openly responded to Davidson’s allegations and this story may be updated in the future.
