USDC is no longer backed by the US Dollar. Or rather, it is not only backed by the US Dollar.
This clarification has been crystallized in the definition given by Coinbase. As a matter of fact, together with Circle, the exchange issues the second stablecoin by market cap.
Until a few days ago on the site of Coinbase, in the section dedicated to USD Coin, it was possible to read:
Backed by US dollar
Each USDC is backed by one US dollar, which is held in a bank account.
Now it reads:
Backed by fully reserved assets
Each USDC is backed by one dollar or asset with equivalent fair value, which is held in accounts with US regulated financial institutions.
There are several reasons for this specification.
USDC and the US dollar reserves
USD Coin recently revealed its reserves. The report showed that of the 22 billion USDC in circulation, only 61% is cash or cash equivalent (about $13.4 billion). Then there are debt securities, treasury bills, bonds and other forms of money that do not equate to cash.
The very revelation of this report, while confirming that USDC is fully backed by reserves, has effectively disproved the claim that there is one US dollar in a bank account for every USDC.
USDC has essentially been forced to follow the path taken by Tether. The queen of stablecoins already disclosed its reserves in March. It did so not only because of the well-known legal issues, but also to maintain investor confidence. Again, this is not just about cash. USDC had to opt for full transparency, just as its competitor did.
For Tether, this was a wise decision, and it is no coincidence that its market cap continues to grow: it is currently over $60 billion, a sign that there is strong market demand.
As for USDC, there is another reason for the change of wording on Coinbase: Janet Yellen, the US Treasury Secretary, is determined to regulate stablecoins. In practice, cryptocurrencies with a stable value have the authorities breathing down their necks.
Finally, there is ambition: as Jeremy Allaire explained in a blog post, Circle wants to become a full-fledged national bank of digital currencies.
“Circle intends to become a full-reserve national commercial bank, operating under the supervision and risk management requirements of the Federal Reserve, U.S. Treasury, OCC, and the FDIC. We believe that full-reserve banking, built on digital currency technology, can lead to not just a radically more efficient, but also a safer, more resilient financial system”.
Basically, it’s just the beginning of a long journey.