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This isn't really news, it's just better marketing language. The new language is "Backed by fully reserved assets. Each USDC is backed by one dollar or asset w

This isn't really news, it's just better marketing language. The new language is "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". They've have been open about their partial non-cash backing. Here's their latest attestation (page 4 is the relevant bit): https://www.centre.io/hubfs/pdfs/attestation/Grant-Thorton_circle_usdc_reserves_07162021.pdf?hsLang=en https://www.centre.io/hubfs/pdfs/attestation/Grant-Thorton_c... 61% as "Cash & Cash Equivalents", the rest in very low-risk investments.

yunohn 5y ago
Did we read the same article? Marketing language or not, the old language was very straightforward and claimed full USD backing - only the new language relates to your claim of “ open about their commercial paper backing”.
gruez 5y ago
>or asset with equivalent fair value what's the difference between that and whatever tether's doing with their "commercial paper"? Are "US regulated financial institutions" prohibited from holding shady commercial paper?
ignoramous 5y ago
Interesting then Facebook chose to build the Libra/Diem alt-coin (and network?) with similar guarantees (backed by equivalent assets), instead of relying on USDC. I'm confident that Facebook (and not Coinbase) will make cryptocurrency mainstream by enabling cross-border micro-transactions through e-commerce across its WhatsApp and Instagram userbase.
- sparkling 5y ago
  Its been a minute since Libra was in the news, is it still being actively developed by FB after many of their initial partners dropped out?
  - ignoramous 5y ago
    Personally, I think it is a matter of when, not if.
troymc 5y ago
It was news to me. I hold USDC because I thought every USDC was backed by a US dollar. That's what all their statements said. I don't even know what commercial paper is. Why did they find the need to back some USDC with that? Is something wrong? The lack of communication is troubling.
- bequanna 5y ago
  A simple Google search will answer your question about commercial paper. As for why they would do this: cash management 101. Why let cash sit in an account when you can make interest on low or no risk, short term debt? Crypto/defi/etc is high risk and requires you to DYOR. If that makes you uncomfortable, this space may not be a good fit for you.
  - scarmig 5y ago
    > Why let cash sit in an account when you can make interest on low or no risk, short term debt? Because you've promised "investors," or at least made lots of strong statements that led them to believe, that you're letting cash sit in an account? When I invest in a fund, and it says that it does X, but then secretly does Y because they believe it's obviously better, that's something between totally untrustworthy and outright fraud.
    - bequanna 5y ago
      This is a somewhat naïve view. Investing in high quality short term commercial paper or treasuries is essentially the same or less risk vs. letting $XX billion sit in some bank account. In accounting, these instruments are actually regarded the same as cash and called “cash equivalents”.
      - NationalPark 5y ago
        If it’s the same risk then why does it pay more than T bills? Regardless, the issue is the misrepresentation, not the actual assets (which most people don’t believe add up to the total anyway, right?)
NelsonMinar 5y ago
You understand "asset with equivalent fair value" is not the same as actual dollars? Every other asset has a risk of its price changing. It may be worth $1 today but it may or may not be worth $1 tomorrow. Maybe you knew all along USDC wasn't actually backed by real US dollars. Apparently Coinbase and its customers didn't. And given the ongoing slow motion disaster of Tether, the actual backing of stablecoins is important to be very precise about.
- dalbasal 5y ago
  I agree, but I also think that reserves are only part of the game. A lot of the story resides in Coinbase' market transactions. How do they stabilize their stablecoin, precisely?
  - deweller 5y ago
    It is not guaranteed. You should not treat is as FDIC insured funds. But let's do a little game theory. Say the market starts losing faith in USDC and people start selling 1 USDC for, say, 0.98 USD. Coinbase can either let this happen, or they can start using their cash and investments to buy back USDC at a 2% discount. If Coinbase has every reason to believe that USDC is just fine, then they have a large financial incentive to start buying USDC back. This will raise the market price back to near $1 USD. That is how they stabilize their stablecoin. It is game theory and market mechanics and not a government that stabilize stablecoins. If you don't trust this, then you should not hold USDC.
    - dalbasal 5y ago
      I think you're describing stablecoins just right. If that's all of it though, why should anyone be interested in what reserves these stablebanks hold. What they're doing is, creating a USD bank. It's not just about bank guarantees. Game theory describes the stable outcome, it doesn't predict it.
    - NelsonMinar 5y ago
      That's the optimistic scenario. The pessimistic is USDC goes down to $0.98 and then people panic and sell and it goes down to $0.97, $0.96, ... Meanwhile Coinbase tries to borrow a whole lot of cash to try to prop up the currency. The amount they have to borrow keeps going up though and at some point they stop being able to cover the promise. This scenario is not implausible. It literally happens every few years in the modern economy with different assets. Real assets that are backed by real things, not a completely synthetic currency. The dollar assets backing USDC are the only thing that really secures it. Not "game theory". Sometimes you lose games.
mrh0057 5y ago
If that’s the language it can be any asset. Doesn’t mean it high quality AAA rated bonds or government notes, bills, etc.
purple_ferret 5y ago
Step 1: Buy Bitcoin Step 2: Print USDC equivalent Step 3: Use USDC to buy bitcoin Step 4: Repeat
- jbverschoor 5y ago
  Exactly the same as regular finance
  - pja 5y ago
    Sure, but USDT / USDC are pretending not to be wildcat banks, when that’s probably exactly what they are. If you tell people that they’re buying the crypto equivalent of T-bills on one side, but then turn round and lend those $ to a combination of Chinese construction companies and crypto exchanges on the other side then you’re not being straight with people - you’re exposing them to a sizable risk of loss in return for nothing. In the trad finance world, unsophisticated investors get the benefit of Fed / BoE / ECB banking bailouts for their (relatively) small balances if the bank they put their cash in goes under & bigger players understand the risks & choose their counterparties accordingly. There’s no central bank of crypto out there to bail out USD(T|C) if they go tits up & if they’re lying about their risk exposure then you won’t know anything about it until suddenly there aren’t any $ to be had.
    - jbverschoor 5y ago
      Yeah, up to 100k per bank here in europe. Anything over that is simply gone. In return you're paying negative interest, or some custody fee of around -1%. offtopic, but I don't believe banks will be bailed out any more. They did so, and it didn't turn out so great.
DebtDeflation 5y ago
>They've have been open about their commercial paper backing. They haven't been open at all about the ISSUER of that commercial paper though. It's one thing if it's Walmart or ExxonMobil, quite another if it's Bitfinex or some other crypto-related company.

yunohn 5y ago

Did we read the same article? Marketing language or not, the old language was very straightforward and claimed full USD backing - only the new language relates to your claim of “ open about their commercial paper backing”.

gruez 5y ago

>or asset with equivalent fair value what's the difference between that and whatever tether's doing with their "commercial paper"? Are "US regulated financial institutions" prohibited from holding shady commercial paper?

ignoramous 5y ago

Interesting then Facebook chose to build the Libra/Diem alt-coin (and network?) with similar guarantees (backed by equivalent assets), instead of relying on USDC. I'm confident that Facebook (and not Coinbase) will make cryptocurrency mainstream by enabling cross-border micro-transactions through e-commerce across its WhatsApp and Instagram userbase.

sparkling 5y ago
Its been a minute since Libra was in the news, is it still being actively developed by FB after many of their initial partners dropped out?
- ignoramous 5y ago
  Personally, I think it is a matter of when, not if.

troymc 5y ago

It was news to me. I hold USDC because I thought every USDC was backed by a US dollar. That's what all their statements said. I don't even know what commercial paper is. Why did they find the need to back some USDC with that? Is something wrong? The lack of communication is troubling.

bequanna 5y ago
A simple Google search will answer your question about commercial paper. As for why they would do this: cash management 101. Why let cash sit in an account when you can make interest on low or no risk, short term debt? Crypto/defi/etc is high risk and requires you to DYOR. If that makes you uncomfortable, this space may not be a good fit for you.
- scarmig 5y ago
  > Why let cash sit in an account when you can make interest on low or no risk, short term debt? Because you've promised "investors," or at least made lots of strong statements that led them to believe, that you're letting cash sit in an account? When I invest in a fund, and it says that it does X, but then secretly does Y because they believe it's obviously better, that's something between totally untrustworthy and outright fraud.
  - bequanna 5y ago
    This is a somewhat naïve view. Investing in high quality short term commercial paper or treasuries is essentially the same or less risk vs. letting $XX billion sit in some bank account. In accounting, these instruments are actually regarded the same as cash and called “cash equivalents”.
    - NationalPark 5y ago
      If it’s the same risk then why does it pay more than T bills? Regardless, the issue is the misrepresentation, not the actual assets (which most people don’t believe add up to the total anyway, right?)

NelsonMinar 5y ago

You understand "asset with equivalent fair value" is not the same as actual dollars? Every other asset has a risk of its price changing. It may be worth $1 today but it may or may not be worth $1 tomorrow. Maybe you knew all along USDC wasn't actually backed by real US dollars. Apparently Coinbase and its customers didn't. And given the ongoing slow motion disaster of Tether, the actual backing of stablecoins is important to be very precise about.

dalbasal 5y ago
I agree, but I also think that reserves are only part of the game. A lot of the story resides in Coinbase' market transactions. How do they stabilize their stablecoin, precisely?
- deweller 5y ago
  It is not guaranteed. You should not treat is as FDIC insured funds. But let's do a little game theory. Say the market starts losing faith in USDC and people start selling 1 USDC for, say, 0.98 USD. Coinbase can either let this happen, or they can start using their cash and investments to buy back USDC at a 2% discount. If Coinbase has every reason to believe that USDC is just fine, then they have a large financial incentive to start buying USDC back. This will raise the market price back to near $1 USD. That is how they stabilize their stablecoin. It is game theory and market mechanics and not a government that stabilize stablecoins. If you don't trust this, then you should not hold USDC.
  - dalbasal 5y ago
    I think you're describing stablecoins just right. If that's all of it though, why should anyone be interested in what reserves these stablebanks hold. What they're doing is, creating a USD bank. It's not just about bank guarantees. Game theory describes the stable outcome, it doesn't predict it.
  - NelsonMinar 5y ago
    That's the optimistic scenario. The pessimistic is USDC goes down to $0.98 and then people panic and sell and it goes down to $0.97, $0.96, ... Meanwhile Coinbase tries to borrow a whole lot of cash to try to prop up the currency. The amount they have to borrow keeps going up though and at some point they stop being able to cover the promise. This scenario is not implausible. It literally happens every few years in the modern economy with different assets. Real assets that are backed by real things, not a completely synthetic currency. The dollar assets backing USDC are the only thing that really secures it. Not "game theory". Sometimes you lose games.

mrh0057 5y ago

If that’s the language it can be any asset. Doesn’t mean it high quality AAA rated bonds or government notes, bills, etc.

purple_ferret 5y ago

Step 1: Buy Bitcoin Step 2: Print USDC equivalent Step 3: Use USDC to buy bitcoin Step 4: Repeat

jbverschoor 5y ago
Exactly the same as regular finance
- pja 5y ago
  Sure, but USDT / USDC are pretending not to be wildcat banks, when that’s probably exactly what they are. If you tell people that they’re buying the crypto equivalent of T-bills on one side, but then turn round and lend those $ to a combination of Chinese construction companies and crypto exchanges on the other side then you’re not being straight with people - you’re exposing them to a sizable risk of loss in return for nothing. In the trad finance world, unsophisticated investors get the benefit of Fed / BoE / ECB banking bailouts for their (relatively) small balances if the bank they put their cash in goes under & bigger players understand the risks & choose their counterparties accordingly. There’s no central bank of crypto out there to bail out USD(T|C) if they go tits up & if they’re lying about their risk exposure then you won’t know anything about it until suddenly there aren’t any $ to be had.
  - jbverschoor 5y ago
    Yeah, up to 100k per bank here in europe. Anything over that is simply gone. In return you're paying negative interest, or some custody fee of around -1%. offtopic, but I don't believe banks will be bailed out any more. They did so, and it didn't turn out so great.

DebtDeflation 5y ago

>They've have been open about their commercial paper backing. They haven't been open at all about the ISSUER of that commercial paper though. It's one thing if it's Walmart or ExxonMobil, quite another if it's Bitfinex or some other crypto-related company.