The creators of the USDC promise up to 7% annual return, 10 times more than a 1-year ultra-secure Treasury bill.
Corporate treasurers fed up with minimal returns on their cash are about to get another launch from the world of cryptocurrencies.
Circle Internet Financial Ltd., one of the digital asset firms behind the so-called USDC-denominated stablecoin, which is pegged 1 to 1 to the dollar, has prepared an alternative for legions too conservative to follow the likes of Elon Musk. and Jack Dorsey in bitcoin. Park your extra money in USDC and earn up to 7% annually through high-yield accounts, marketing says, more than 10 times the yield of a 1-year ultra-secure Treasury bill.
The idea may be appealing to some treasurers who were initially seduced by the huge gains in crypto, especially after bitcoin’s roughly 40% decline since mid-April. Stablecoins like USDC are gaining increasing attention due to their ability to hold their pegs during wild cryptocurrency price fluctuations, suggesting that they could actually serve as a store of value. Still, not all long-term digital market watchers are convinced.
“If companies want to put their corporate reserves in a stable currency and that is fully audited, it is like putting their money in a bank account which is what they normally do,” John Griffin, professor of finance at the University of Texas at Austin, he said in an email. “However, if the account is paying a higher return than the bank account returns, then you are not simply investing in some risk-free asset.”
Here’s how the Circle program will work: Treasurers would open a “digital dollar account” where the company’s fiat money is converted to USDC and interest is paid in USDC. The return is generated when Circle lends the digital dollars to a network of institutional investors who are willing to pay an interest rate to access additional capital.
Companies would block your return when the account is opened, similar to a bank certificate of deposit. Circle plans to offer accounts with maturities ranging from one month to one year, with no early withdrawals allowed. Available rates will be updated weekly based on USDC loan demand.
That’s a bit more tame than the strategy first outlined last year by MicroStrategy Inc. CEO Michael Saylor, who advocated investing the company’s reserves in Bitcoin because he said the dollar is being downgraded by the surge. of inflation. Musk’s February announcement that Tesla Inc. had added Bitcoin to its balance sheet helped fuel the rally that took the largest cryptocurrency to a record high in April before it lost more than a third of its value.
Follow the news of El Espectador on Google News“Corporate reserves are not for investing in stocks, going to Las Vegas or something more volatile and more manipulated against you like Bitcoin,” Griffin said.
With few non-crypto companies following MicroStrategy, Tesla, and Dorsey’s Square Inc. on Bitcoin, Circle hopes stablecoins will be the next logical step. The company is working with Genesis Global Capital, one of the largest cryptocurrency lenders.
The service will be available for the first time in the United States and Switzerland, and will launch “imminently,” Circle CEO Jeremy Allaire said in an interview. Thousands of companies are already on the waiting list, according to Circle.
“We see the opportunity for the treasury use case grow a lot,” Allaire said.
Other stablecoin providers are launching similar offerings. On May 26, the Gemini Exchange, the brainchild of the Winklevoss brothers, said investors can earn up to 7.4% annually in Gemini dollars through a program called Gemini Earn. The Gemini token is also pegged to the dollar and its reserves are held by State Street Bank and Trust, the world’s largest financial custodian. Each month, the dollar deposit balance is vetted by BPM LLP, an independent registered public accounting firm.
USDC reserves are certified monthly by the accounting firm Grant Thornton LLP and posted online.
Several small cryptocurrency lenders already offer performance accounts for different currencies, including less regulated stablecoins like Tether.
For these products, “appropriate users would be people who invest in junk bonds or similar risky loans,” said Aaron Brown, a crypto investor and writer for Bloomberg Opinion. “It could offer a better risk-adjusted return than the alternatives … or not. But whatever it is, it is not a savings account in the way that most people understand that term. “
