The world's second-largest stablecoin is undergoing a massive change

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Digital currency company Circle had claimed its stablecoin, USD Coin, was backed 1:1 by actual dollars in a bank account.

In July, it was revealed this was no longer the case, with Circle disclosing in an “attestation” from auditors Grant Thornton that cash made up just over 60% of USD Coin’s reserves. The other 40% was backed by various forms of debt securities and bonds.

What constitutes a stablecoin’s reserves is important. What sets them apart from other cryptocurrencies is the fact they’re pegged to an existing currency like the U.S. dollar or the euro. The aim is to avoid the volatility often found in bitcoin and other major cryptocurrencies.

Now, Circle says it’s changing the makeup of USD Coin’s reserves once again, with just cash and U.S. Treasury bonds underpinning the stablecoin.

Centre, a consortium founded by Circle and crypto exchange Coinbase which developed the stablecoin, unveiled the change on Sunday.

“Mindful of community sentiment, our commitment to trust and transparency, and an evolving regulatory landscape, Circle, with the support of Centre and Coinbase, has announced that it will now hold the USDC reserve entirely in cash and short duration US Treasuries,” Centre said in a blog post. “These changes are being implemented expeditiously and will be reflected in future attestations by Grant Thornton.”

Why it matters

Many crypto traders use stablecoins as an alternative to their bank, to buy or sell digital currencies.

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