Yesterday, Circle announced that asset manager BlackRock is managing a bespoke government money market fund specifically for Circle, the issuer of the USDC stablecoin, the second largest.
In April, BlackRock participated in Circle’s $400 million funding round, with BlackRock stating it intended to explore capital market applications for USDC without elaborating.
The funding was intended to tide Circle over to the completion of its SPAC deal on 22 December 2022. However, last week the SPAC revealed plans to move the closing to 31 January 2023, a step that requires approval from shareholders representing 65% of the stock.
Regarding the BlackRock money market fund – the Circle Reserve Fund – it invests in cash, short-dated Treasuries and repo with an average maturity of 60 days. BlackRock earns 0.17% per year.
“Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so,” states the prospectus. The initial minimum fund amount is $2 billion. Circle said it is starting to shift other investments into the fund as existing Treasury holdings mature, a process that will complete by the end of Q1 2023.
The money market fund is allowed to borrow money ‘during periods of unusual market conditions.’
As previously announced, BNY Mellon is the custodian for the USDC reserve assets, and has the same role for the money market fund. The balance sheet treatment of crypto custody makes it unattractive for bank custodians like BNY Mellon. However, for Circle, the bank is custodying Treasuries or a money market fund rather than crypto.
USDC stablecoin market cap slips
The market capitalization of USDC is currently $42.3 billion, down from $56 billion in mid-June. Arguably this is attributable to the actions of its competitors. Over the same period, the market cap of the largest stablecoin, Tether, is marginally higher at $69.3 billion. During that time, Tether said it reduced its reserve commercial paper holdings to zero, replacing them with Treasuries.
Third-ranked stablecoin Binance USD (BUSD) is up 28% to $22.5 billion over the same period, which can be attributed to a new policy of converting Binance exchange balances held in USDC, Paxos Dollar and TrueUSD to its own BUSD coin. It also removed some crypto trading pairs that include these tokens.
The acting Comptroller of the Currency, Michael Hsu, previously observed that the bigger stablecoins tend to be associated with cryptocurrency exchanges. Circle partnered with Coinbase. Hsu believes stablecoins are insufficiently interoperable with each other, something that Binance’s move reinforces.
In other news, Circle launched a Euro stablecoin and received in-principle approval regulatory approval in Singapore.