USDC is the primary stablecoin used by Coinbase. The coin was created and maintained by Circle.
It is important to understand that by owning a stablecoin that is backed by US Dollars, the money backing the coin must be stored in a safe and often central location.
Prior to last week many people thought of USDC as a decentralized currency different from the US Dollar and outside of the traditional banking system.
However with Silicon Valley Bank shutting down we saw a short period of destabilization of USDC because some of the money backing the coin were stored with SVB bank.
How does Circle make money?
Circle makes money by earning interest on the dollars backing the coin. This is done mainly by using short-term treasury bills. With $40 billion on hand if the company earns an average of 4% they are making roughly $1.6 billion a year in revenue.
Not bad for holding onto dollars in treasuries.
How is the money allocated
The above chart shows the basic breakdown of cash in the bank (less than $10 billion) and US Treasuries (over $30 billion).
An interesting item to note is that the money is custodied at BNY Mellon and managed by BlackRock.
A quick breakdown of how their assets are allocated and current interests rates for their fund:
Conclusion
Circle does an excellent job of yielding interest without taking on risk. That said they are deeply connected to the US banking system. This is a logical and appropriate way to manage a stablecoin.
Cheers
Josh Bobrowsky
Founder & CEO Skybrook
Thank you for the impressive articulation and demystifying USDC.🖖🏽😎
Great breakdown Josh