There has been a rumor circulating on crypto-twitter that Circle’s USDC stablecoin is on the brink of collapse.
According to the rumor, Circle is losing money to pump USDC’s market cap.
Additionally, Circle had exposure to crypto firms experiencing financial woes, including Genesis Trading, BlockFi, Celsius, Galaxy Digital, and Three Arrows Capital.
However, Colin Wu has pointed out that the regulatory requirements for USDC are stringent, so the rumors should be dismissed.
For the last 48 hours, crypto Twitter has been abuzz with rumors that Circle’s stablecoin of USDC could be on the brink of collapse. The story was initiated from the Twitter thread below by crypto community member @CryptoInsider23, who cautioned that the Circle has been losing money to pump USDC.
How it starts: Circle loses money to pump USDC market cap. Circle pays the higher rate of what Signature and Silvergate are normally making on cash deposit. For this arrangement Signature converts every Dollar from all customers into USDC.
Circle is Losing Money As it Continuously Pays High Interest.
According to the analysis of @CryptoInsider23, Circle has already lost $500 million in the first quarter of 2022 and is on track to losing a total of $1.5 billion in the year. @CryptoInsider23 adds that Circle continues to pay high-interest rates of 5% to an unnamed bank. This sole reason is why Circle has been raising funding for the last few years.
In addition, Circle’s USDC reserves are being lent out by the unnamed bank, further straining its operations. The stablecoin company allegedly also uses an offshore Bermuda company to provide a suitable lending facility to avoid the reach of US regulators.
Circle Has Exposure to Genesis Trading, Three Arrows Capital, BlockFi, and Celsius Network.
Furthermore, @CryptoInsider23 points out that USDC had exposure to several crypto firms currently facing financial woes. He explained:
The shady part: USDC is now lent to high-risk lenders. Customers of these loans include Genesis, BlockFi, Celsius, Galaxy, Alameda and 3AC. It’s a list of nearly every borrower that is blowing up LMFAO!!
The size of the hole among all lenders, exchanges and liquidity providers has been counted in the $3 to $5 billion range. You can see USDC and Signature are at risk of a Bank Run since lenders cannot return billions and billions of USDC!!
Do Not Believe The Rumors that Circle’s USDC is Collapsing – WuBlockchain.
However, the Colin Wu of WuBlockchain has since shared his analysis of the potential collapse of Circle’s USDC. According to his research, the rumors should be dismissed completely. He explained:
All in all, given the strict regulation of stablecoins and Circle’s traditionally cautious approach to compliance, rumors of a collapse should not be believed.