- A rumor has been circulating on crypto-twitter that Circle’s USDC stablecoin is on the brink of collapse.
- According to the rumor, Circle is losing money to increase the market capitalization of USDC.
- Additionally, Circle was exposed to cryptocurrency firms experiencing financial problems, including Genesis Trading, BlockFi, Celsius, Galaxy Digital, and Three Arrows Capital.
- However, Colin Wu has pointed out that the regulatory requirements for USDC are strict, so the rumors should be dismissed.
For the past 48 hours, crypto Twitter has been abuzz with rumors that Circle’s USDC stablecoin could be on the verge of collapse. The story was started from the Twitter thread below by crypto community member @CryptoInsider23, who warned that the Circle has been losing money to pump USDC.
How it starts: Circle loses money to increase the market capitalization of USDC. Circle pays the higher rate than what Signature and Silvergate normally charge on cash deposits. For this deal, Signature converts every dollar of all clients into USDC.
—Geralt Davidson (@CryptoInsider23) June 29, 2022
Circle is losing money because it continually pays high interest.
According to analysis by @CryptoInsider23, Circle has already lost $500 million in the first quarter of 2022 and is on track to lose a total of $1.5 billion for the year. @CryptoInsider23 adds that Circle continues to pay high interest rates of 5% to an unnamed bank. This reason alone is why Circle has been fundraising for the last few years.
Furthermore, Circle’s USDC reserves are being loaned out by the anonymous bank, making their operations even more difficult. The stablecoin company also allegedly uses a Bermuda offshore company to provide a proper lending service 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 was exposed to several crypto companies that are currently facing financial problems. He explained:
The shady part: USDC is now being lent to subprime lenders. Clients for these loans include Genesis, BlockFi, Celsius, Galaxy, Alameda, and 3AC. It is a list of almost all the borrowers that are exploiting LMFAO!
The size of the hole between all the lenders, exchanges, and liquidity providers has been counted in the range of $3 to $5 billion. You can see that USDC and Signature are at risk of a bank run as lenders cannot pay back billions and billions of USDC!
Don’t believe the rumors that Circle’s USDC is crashing – WuBlockchain.
However, Colin Wu of WuBlockchain has since shared his analysis of the possible collapse of Circle’s USDC. Based on his investigation, the rumors should be completely dismissed. He explained:
Overall, given the strict regulation of stablecoins and Circle’s traditionally cautious approach to compliance, rumors of a collapse should not be believed.