Circle tells congress its coin is '100%' backed by cash and short-term US debt as lawmakers scrutinize stablecoins

• Circle's USDC stablecoin is "100%" backed by cash and US debt, the company's CEO said Wednesday.
• Circle CEO Jeremy Allaire and other crypto executives testified before Congress on Wednesday.

Digital payments company Circle told a House committee on Wednesday its USDC stablecoin is fully backed by the US dollar and short-term government debt, addressing a question about the company's recent change in the makeup of the digital coin's reserves.

Stablecoins are a type of cryptocurrency that's pegged to an asset such as a fiat currency, government bonds, or a precious metal.

"Yes, I can confirm that 100% of the reserves that back USDC are held in cash and short-duration US Treasuries," Jeremy Allaire, CEO of Circle, told members of the House Financial Services Committee. He was responding to a question from Rep. Nydia Velázquez, a Democrat from New York, at a hearing on a wide range of issues about the $2.4 trillion cryptocurrency market.

Circle said that beginning in September it would hold all of USDC's reserves in cash and short-duration US government treasuries. The company announced the shift in the composition of its reserves after an audit it released in July that showed about 61% of USDC's reserves were backed by cash-related assets, with the rest made up by a mix of US Treasuries, Yankee CDs, commercial paper and corporate bonds. The company had previously said the stablecoin was a 1:1 representation of a US dollar on the ethereum blockchain.

Centre, a consortium between Circle and crypto exchange Coinbase that developed USDC, said in a late August blog post that Circle's reserves had expanded beyond cash and cash equivalents in May 2021.

"Can you please explain why you were offering a stablecoin that wasn't backed by fiat currency and what prompted you to make this change?," Velázquez asked.

"USDC has been governed by the money-transmission statutes throughout the United States, the permissible investment rules of money-transmission statutes, the same statutes that govern the $35 billion of balances of PayPal or Square or other fintechs," said Allaire. "And so we've always been within the statutory requirements and I think we've reported on that every month since USDC launched in 2018."

Velázquez simultaneously put the same question to Paxos CEO Charles Cascarilla. Paxos runs the Pax Dollar, or USDP, stablecoin.

"We have always only backed our stable coin by short-term Treasuries or cash and cash equivalents," said Cascarilla. "And the reason we did that is because we have a regulated stable coin. We're overseen by the New York Department of Financial Services," he said.

Cascarilla continued: "We operate through our trust company. We have a primary regulator - that primary regulator also regulates our token. And importantly, that primary regulator sets the supervisory agreement with which we're able to then offer our products and so this was a statutory requirement for us."