U.S. regulators are targeting stablecoins! Circle, stablecoin USDC’s issuer, is under investigation by the SEC. The investigation likely has to do with the US regulation of stablecoin, or Circle’s high-interest yield product.
As the issuer of the world’s second largest stablecoin, Circle received an investigation subpoena from the US SEC in July. It requests Circle to provide information about asset holding, customer programs, and operations. Circle CEO Jeremy Allaire said they are cooperating fully with the investigation. But it did not specify the focus of the investigation by the US Securities and Exchange Commission (SEC).
The investigation has to do with key development plans of Circle. In July this year, Circle announced the SPAC merger to go public on the US stock market. Circle’s valuation will be at $4.5 billion after the merger.
In June, Circle announced the launch of Circle Yield. It is a high-interest product allowing commercial institutions to stake USDC stablecoins and earn high interest rates.
According to Circle, Circle Yield’s focus is to provide a high-interest yield product compliant with the regulatory framework. Circle Yield is similar to Coinbase LEND. The exchange giant stopped launching LEND under pressure from the SEC.
Stablecoin Risk: USDC Stablecoin Reserve Asset?
In addition, the investigation is more likely to involve the USDC stablecoin under Circle and Coinbase. The Biden government plans to impose bank-like regulation on stablecoin issuers.
In the past few months, USDT (Tether) and USDC, the top two stablecoins, have been plagued by financial and regulatory issues. Market rumors suggest that stablecoin issuers – holding commercial papers – may be affected by China Evergrande’s debt crisis. Earlier, Circle announced that it would no longer hold commercial paper and bonds as reserve assets. Starting from September, all reserve assets of USDC will be US dollar cash and short-term US Treasury bonds.
According to reports, the Biden government of the United States intends to implement a bank-like regulatory framework for stablecoin issuers. This may require stablecoin issuers such as Circle to formally apply for a banking license.
Analysts expect the new stablecoin regulation may be beneficial to Facebook’s Diem stablecoin initiative. Diem is likely to get approval from the US regulator.
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