Cash Is Flowing From Stablecoins to Treasuries, CEO Says

Investment is flowing out of stablecoins into assets like US Treasuries in response to prevailing macroeconomic conditions, according to Circle Internet Financial Ltd.’s Chief Executive Officer Jeremy Allaire.

Rising interest rates have led institutions to rethink how much exposure they want to crypto and instead purchase lower-risk assets like US government bonds or money-market instruments, Allaire said in an interview Friday.

“This is just a macro phenomenon,” Allaire, whose company operates the USD Coin stablecoin, said on the sidelines of the Singapore FinTech Festival. “That’s not in our control really.”

The market capitalization of USD Coin, also known as USDC, has dropped from a recent peak of about $56 billion to just over $42 billion, data from CoinGecko shows. Circle says the token — the second-largest stablecoin and the fifth-largest cryptocurrency — is fully backed by cash and short-dated US Treasuries.

Stablecoins, which typically pledge a constant $1 value, shot up the regulatory agenda this year following the $60 billion wipeout in the algorithmic variant TerraUSD and its sister token Luna. The implosion exacerbated this year’s digital-asset rout and sparked blowups at a range of crypto outfits.

“We’ve been extremely skeptical of projects in algorithmic stablecoins,” Allaire said. “It’s kind of what I like to call financial alchemy.”

TerraUSD was meant to have a constant $1 value via a complex mix of algorithms and trader incentives involving Luna. The edifice crumbled when confidence in the ecosystem evaporated.

Circle’s plan for a merger with special purpose acquisition company Concord Acquisition Corp. has met with delays. Allaire said he’s optimistic Circle can become a public company in the “near future.”

Earlier in the week, Circle said it received a license from the Monetary Authority of Singapore to offer digital-token payment services. It had previously identified Singapore as its principal hub in Asia.