Circle invests in BlackRock-managed reserve fund to back USDC

USDC Circle

Circle, the issuer of the second-largest stablecoin USDC, said that it has started investing in a Circle Reserve Fund (USDXX), managed by BlackRock, the world’s largest asset manager. The fund is a part of Circle’s effort to minimize the risks associated with stablecoins and guarantee USDC holders to redeem their coins.

The Circle Reserve Fund is registered under Rule 2a-7 government money market fund. BlackRock will keep the funds in cash and short-dated US Treasuries. The fund will only be available to Circle and would use parts of the proceeds (interest income from short-dated US Treasuries) to buy new Treasury holdings and store them under the custody of BNY Mellon.

“We expect the reserve composition will continue to be approximately 20% cash and 80% short-duration U.S. Treasuries”, according to the Circle blog post.

Circle started the investing process on 3 November and is expected to finish by the end of the first quarter of 2023.

It may be recalled that Circle had entered into an investment agreement with BlackRock, Fin Capital, Fidelity Management, and Marshall Wace LLP in mid-April 2022 and received an investment commitment of $400 million.

Since the Terra-LUNA crash and the failure to re-peg the UST stablecoin, stablecoin majors including Tether have moved to minimize the risks associated with the stablecoin business. For instance, Tether has removed commercial papers from its portfolio and its reserves are now fully backed by cash and US securities.

Circle’s recent move will lend more confidence to holders and will expand its use case in the crypto market and beyond, which is facing increased competition from other stablecoins like BUSD.

In another development, Circle said that it will launch EURO Coin (EUROC), a USDC-like EURO stablecoin, on the Solana blockchain and enable cross-chain transfer protocol by the first half of 2023. EURO Coin, which was launched in June 2022, currently runs on the Ethereum blockchain and its reserves are fully backed by the Euro.

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