Analysis: Is the Circle (USDC) collapse and huge bad debts Real?

Jul 01, 2022

Recently an insider calling @CryptoInsider23 revealed the inside story of the so-called Circle (USDC).

Circle's USDC scheme is on the brink of collapse. If you read their SPAC IPO filings its clear they have been losing money constantly but theres something dirtier happening underneath. They're at major risk on defaulting on USDC reserves. A deep dive 🧵 on USDC. 👇

The main points are as follows:

1. Circle suffers long-term losses because it needs to pay huge interest to the bank.

2. The bank will lend out Circle’s reserves.

3. Circle lending to high-risk lenders such as Genesis, BlockFi, Celsius, Galaxy, Alameda and 3AC to generate “billions” of dollars in bad debts.

At the heart of this is the third point, but it is certainly wrong.

Circle has always been overcollateralized, not an unsecured loan like the one Voyager lent to 3AC. The choice of collateral will also be conservative (the website shows only BTC). So even if there is a loss due to the liquidation of collateral, the amount is not too big.

But not at all.

On the Circle website, there is a deposit business called Circle Yield, which lends money after receiving deposit, emphasizing “Overcollateralized”. But the page also says Genesis Global Capital is a core partner.

https://www.circle.com/en/products/yield

CoinDesk, whose parent company is also owned by DCG, reports that Genesis lost “several hundred million dollars” due to exposure to Three Arrows Capital and Babel Finance. Circle officials say they only accept bitcoin as collateral, but 3AC and others often use GBTC or SETH as collateral, which is theoretically not in line with Circle’s rules.

Secondly, Circle is rising rapidly at present, and its total market value tends to surpass Tether. They are also pursuing a U.S. stock listing, so they will be very cautious about risk control.

Circle has already lost $500 million in the first quarter of 2022 and is expected to lose a total of $1.5 billion in 2022, the so-called insider said. Circle previously disclosed data showing that it will generate $115 million in revenue in 2021, with a loss of about $76 million, with projected revenue of $40 million from USDC, $65 million from TTS and $10 million from SeedInvest. It’s also not credible that a company that was doing well in 2021 would suddenly lose $500 million in one quarter of 2022 due to the bizarre 5% interest rate charged by its partner banks.

https://www.coindesk.com/business/2021/07/08/usdc-is-only-circles-second-biggest-business-spac-filing-shows/

All in all, given the strict regulation of stablecoins and Circle’s traditionally cautious approach to compliance, rumors of a collapse should not be believed. But better disclosure of the relationship with Genesis and whether it suffered losses as a result would have been desirable.

Wu Blockchain

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