Auditors reveal USDC backing as Jim Cramer sounds alarm over Tether’s mad money

Grant Horton has conducted an audit on USDC’s reserves and Jim Cramer has questioned what’s going on with Tether’s commercial paper reserves.

Auditors working for Circle have disclosed the reserves backing the firm’s USDC stablecoin, while Mad Money’s Jim Cramer has questioned Tether’s lack of transparency with its USDT reserves.

Multi-national tax advisory firm Grant Horton conducted the audit, and a reserve attestation report was published on July 20 which showed that 61% of USDC’s reserves were held in cash and cash equivalents equating to $13.4 billion, as of May 28.

Circle’s total commercial paper accounts for 9% of its reserves, and the figures provide a stark contrast to Tether’s reserves, in which undisclosed commercial paper accounted for 49.5% of its total reserves — something that Cramer has been “sounding the alarm” about recently.

The Circle report defines cash as deposits at banks and Government Obligation Money Market Funds, while cash equivalents are defined as securities with an original maturity less than or equal to 90 days.

On May 28 there was 22,176,182,251 total USDC in circulation, with the total fair value of Circle’s U.S. dollar-denominated assets held in segregated accounts fully backing the supply of USDC according to the report.

Circle noted that it voluntarily disclosed its reserves as part of its transparency goals, with the firm revealing plans to go public via a special purpose acquisition company (SPAC) earlier this month.

USDC Reserve Breakdown: Circle

‘Yankee CDs’ and US Treasures represented the next biggest share of assets backing the reserves at 13% and 12% each, with a combined total value of $5.6 billion.

Yankee CDs are defined as “USD denominated Certificates of Deposit issued in the US by branch(es) of Foreign Banking Organizations,” with a maximum maturity of 13 months, while the U.S treasuries have a maximum maturity of three years.

The total commercial paper allocations represent 9% worth $2 billion, corporate bonds account for 5% worth $1.1 billion, and municipal bonds and U.S. agencies comprise 0.2% worth $100 million.

Circle’s USDC reserve breakdown was published amid increased scrutiny on the stablecoin sector from the U.S. government, with United States Treasury Secretary Janet Yellen meeting with other financial regulators this week to discuss a regulatory framework for stablecoins.

Circle CEO Jeremy Allaire emphasized in a July 20 blog post that the firm is committed to providing transparency of its operations and working within the traditional financial system:

“Core economic activities underpinning USDC are built inside the perimeter of the U.S. financial system, and not outside of it.”

Jim Cramer thinks Tether is Mad Money

Speaking during a July 20 interview with The Street, Jim Cramer, the host of CNBC’s Mad Money questioned Tether’s lack of transparency and is asking why the firm hasn’t disclosed what the large percentage of commercial paper backing USDT is.

Tether released a brief reserve breakdown on May 13 and did not mention any independent review conducted on behalf of the firm.

Tether’s reserve breakdown showed that as of March 31, three-quarters of its reserves were held in cash, cash equivalents, other short-term deposits, and commercial paper. Amongst that category, commercial paper accounted for 65.39%, with cash alone accounting for just 3.87%.

Related: Stablecoins under scrutiny: USDT stands by ‘commercial paper’ tether

The firm is yet to reveal what comprises its commercial paper holdings, and Cramer has been sounding the alarm bells:

“I am concerned about Tether, and I’m not gonna stop sounding the alarm until I know what Tether has. They’ve got about $60 billion in commercial paper. Tether open up the kimono, what commercial paper do you own?”

“Why wouldn’t they tell us?” he added, as he questioned whether the SEC will step in to find out.

“There’s a belief that a lot of the commercial bank paper, is Chinese bank paper, why not put that to rest and tell us it isn’t?” he said.

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Circle enables seamless USDC-USD transfers, providing a bridge from banks to DeFi

The result of developments in both crypto technology and regulation, Circle’s new USDC API provides a bridge between crypto and traditional finance.

Circle, the company behind the second most popular stablecoin USD Coin, has rolled out a new API that will allow for the seamless transfer of USDC to USD via automated clearinghouse (ACH) systems. 

The first exchange to adopt the new API will be derivatives and futures specialist FTX, looking to speed up USD settlement processes on behalf of their customers.

In a blog entry, project manager Gee Chuang described how Circle’s ACH API improves connections between the fiat world and the digital world by introducing interoperability among payment rails, such as card, wire and blockchain transfers. Using the API, USD funds can be transferred easily between banks and blockchains with processing traditionally done manually, now automatic.

Circle has partnered with Plaid, a company that specializes in online account security and verification, to provide a process for streamlining USD/USDC transfer through Circle. Chaung said:

“This process prevents common errors like mistyping bank accounts or routing numbers and ensures greater user security, while reducing fraud reversal risks. No digging around for numbers, no clunky codes, no switching between applications during the process.”

More than 50 countries use some version of ACH payment processing, including the EU, United States, United Kingdom, China, Japan and South Korea. Circle has also partnered with Visa to process crypto-related payouts across 30 countries covered by their network.

USD Coin is primarily an Ethereum-based token that can be exchanged for US dollars on a 1:1 basis and is backed by a reserve of regularly-audited assets. Launched in Oct. 2018 as an alternative to Tether, there are currently about 5.4 billion USDC in circulation, making it the second biggest stablecoin by market cap, after USDT.

Demand for USDC has been at an all-time high, setting weekly volume records during the first three weeks of the new year. In addition to being used heavily at Binance and Coinbase, USDC is also a stablecoin favorite among DeFi traders, with platforms like Uniswap, Curve and Compound accounting for hundreds of millions in daily trading volume.

Circle CEO Jeremy Allaire has long been a proponent of integration between the digital currency space and traditional finance, appealing to the U.S. Treasury Department in Dec. 2020 to allow crypto industry collaboration in the regulation development process.

Speaking at a fintech festival earlier that month, Allaire predicted that upcoming breakthroughs in blockchain technology will encourage massive adoption, putting its potential benefits “in the hands of hundreds of millions, if not billions of users.”

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