USDC is defined as high-risk, but Circle’s high transparency is on paper?

Since the beginning of 2021, the stablecoin market has begun to exert strength, and its total issuance has begun to break away from the sideways mode, starting a “climbing” soaring. USDC, which has been the second child of ten thousand years, has also begun multi-chain assault. According to the USDC announcement draft, it is expected that in the next few months, USDC will be launched in Avalanche, Celo, Flow, Hedera, Kava, Nervos, Polkadot, Stacks, Tezos and Tron. Issued on 10 blockchain networks. The USDC, which is already dominating the market with transparency and compliance, has completely opened the door to more fields.

USDC is jointly issued by Circle and Coinbase. Circle is the world’s first company to obtain a BitLicense license from New York State. Since then, it has successively obtained payment licenses from the United Kingdom and the European Union. Coinbase is the world’s first cryptocurrency to be successfully listed. Exchange, so the concept of compliance that it focuses on is basically unquestionable. However, Circle’s high transparency has caused dissatisfaction among many investors after an agreement adjustment after March 2020.

Bitfinexed, who has always been respected by industry insiders as the critics of the crypto industry, said that the additional terms added by Circle in March 2020 are not clear, and there are many doubts in the follow-up answers of its founders, and its transparency has not been revealed. This will inevitably lead the public to regard USDC as a high-risk asset. The following content is the full text of Bitfinexed’s views on the transparency of Circle, the source is medium, compiled by the ostrich blockchain.

In 2014, when Tether made the first announcement to the market, I did not believe that the idea behind Tether was fraud and was for money laundering. And firmly believes that its goal is to solve the problem of exchange deposit and withdrawal interaction.

Tether can obtain legal banking services for cryptocurrency exchanges so that they no longer need to worry about banking. They will only use Tether to handle all compliance issues, such as KYC/AML. But in the case of Tether, they didn’t seem to have expected it. They just exported the cryptocurrency transaction banking problem to themselves, and then had to engage in various interesting businesses to create the illusion of prosperity, security, and legality.

It was a legitimate project at first, and eventually evolved into a complete “fraud”. Bank fraud and money laundering also followed.

Just like Tether, Circle’s USDC platform has ambitious ambitions from the very beginning. As the “big brother” of stablecoins, Tether has set a very low threshold for Circle. A legal stablecoin will provide traders with a safer place to store their funds. USDC promises transparency and certification, and they have been providing monthly certification for many years, but the transparency is not so high. This also proves that Circle’s USDC cannot resist the temptation exposed by Tether itself. The following picture is the first available proof of Circle’s USDC platform:


Proof in October 2018

Although the proof is not an audit, it is at least meaningful. I believe in the Circle proof more than Tether’s “Deltec” proof. Circle proved that there are not many ambiguous terms in the eyes of the public. Rather, it strictly indicates that it is a U.S. dollar held in an escrow account. Very simple and easy to understand, everyone can understand


Only U.S. dollars are held in the escrow account

The crypto market crashed, Circle changed the certification protocol, high transparency is no longer transparent

In March 2020, Circle USDC issued a February certification statement. The certification statement is as follows:


As can be seen from the above figure, the statement clearly indicates that USDC is backed by U.S. dollars in the bank accounts of US depository institutions. However, after March 2020, when Bitcoin suddenly dropped by 40-50% during the panic of the covid-19 epidemic, Circle USDC added some additional terms, namely “approved investments”.


After the massive cryptocurrency market crash, Circle changed its proof clauses, and the issuance of USDC will soar in the next year. So what is an approved investment? Is it US national securities and safe investment? But if this is the case, the problem is that if this is the case, it is equivalent to directly talking about cash and cash equivalents. Similar to the terms of Paxos, it is clearly stated that the assets represented by its investment are cash and cash equivalents. The picture below shows the Paxos certification statement:


It can be seen from this that Circle’s intention is obvious, and the “approved investment” it states is not just cash and cash equivalents.

When Jeremy Allaire, co-founder and CEO of Circle, was asked what the “approved investment” refers to in an interview, Jeremy completely avoided this question and refused to answer this question. Instead, Jeremy tells those who are looking for answers, to look at what is legally governing the transfer of funds where the reserve can be invested. However, different states have different regulations on the projects that can be invested in their reserves, and some states have no restrictions at all. While Circle has currency trading licenses in multiple states, it can theoretically operate within the state with the fewest restrictions.

So, this is an unanswered question. The fact that it avoided the issue of reserves should raise alarm bells for investors. But Tether has the same problem.

In the interview with Jeremy, he said: “If USDC is kept as the public said, I will go to jail.” This sentence caused a lot of shock at the time, because Circle’s competitor Tether was indeed caught in bank fraud and money laundering scandals. Tether handed nearly $1 billion to a criminal company that is currently indicted and has former executives. Phil Potter admitted to bank fraud and money laundering, but so far, Tether has not been jailed for this.

Compared with the problems faced by Tether, Circle does not need to worry in this regard. Although Circle lacks transparency to the crypto community, this is something they can solve immediately, because Circle still has time to clarify how much their reserves actually are. .

And those investors who have expectations of USDC do hope to see the transparency of Circle increase, and its reserve funds can be made public, just as they hope that Tether will be transparent. But Tether refused to be transparent, even if NYAG’s two-year lawsuit only allowed Tether to publish a single page of worthless pie charts.

Circle’s USDC has an excellent opportunity to prove that they are actually better than Tether and are fully invested in safe assets that are not anchored in the cryptocurrency market.

Transparency is a serious issue, or USDC is defined as high risk?

The Circle at this stage is still vague on the issue of transparency, which also greatly drags down the follow-up development of USDC.

1. Is cryptocurrency an “approved investment” of USDC?

2. Are the bonds of cryptocurrency-based companies (dealers, exchanges, miners) an “approved investment” of USDC?

3. When will USDC provide a complete list of its reserves, indicating that they only invest in safe investments, similar to the content published by Fidelity SPAXX (a bank that focuses on investment accounts in traditional finance)?

4. Fidelity SPAXX can be audited, so USDC can be audited. When will USDC audit its reserves? For example, to prove that there is no cryptocurrency speculation in the reserve.

5. Details of “Approved Investment” for March 2020 and April 2020. Did Circle provide emergency loans to traders to intervene in the cryptocurrency market in March 2020?

In the opinion of most investors, failure to adequately answer these very simple questions will make us doubt whether Circle’s USDC product is safe.


For investors, transparency is extremely important. If Circle cannot be transparent about its asset reserves, then it cannot claim to be transparent. If Fidelity SPAXX can be completely transparent, but Circle cannot, then Circle’s products are orders of magnitude worse than those that already exist on the market today. In fact, SPAXX is more transparent than Circle and is passed on through benefits.

The only reason why Circle  USDC does not want to be transparent about its reserves is that if its asset reserves are at high risk, or even junk assets, or assets related to the cryptocurrency field, then once the cryptocurrency collapses, the borrower may not be able to repay. Loans, and even crypto safe-haven assets are not safe. If Circle USDC fails to subdivide its reserves as shown by the traditional financial investment bank SPAXX, then it can undoubtedly be defined as high risk.

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