A Closer Look at Circle’s USDC Operation and Possible Failure

Twitter user @CryptoInsider23 posted a thread claiming that Circle’s USDC stablecoin “is on the brink of collapse.” The account explains that they were able to come to this conclusion by looking into Circle’s SPAC IPO filings.

From the provided tweet and infographic, Circle is currently paying Signature Bank and Silvergate a higher rate (estimated to be around 5% at current interest rates) of what they normally would be making on cash deposits. Signature will then convert all customer funds into USDC.

By doing this, Circle continues to lose money while raising capital twice per year every few years. It is already estimated that Circle has lost $500 million in Q1 of 2022 and is currently on track to lose $1.5 billion in total for the year.

The operations with Signet (Signature Bank’s digital payments platform) involve having USDC reserves be invested into the platform. With Signature’s and Silvergate’s USDC reserves, they are then able to leverage their holdings or participate in fractional reserve lending. 

In addition, Circle is also using an offshore Bermuda company in order to facilitate USDC lending and avoid U.S. controls and disclosures.

Possible high-risk lenders that have borrowed USDC include:

• Genesis
• BlockFi
• Celsius
• Galaxy
• Alameda
• 3AC

@CryptoInsider23 states that the amount that would need to be on hand in order to avoid a bank run would be in the $3 to $5 billion range.

The account ends the tweet thread with a warning:

I'm a crypto insider so I can and need to tell you what's going on behind the curtain and it really is so very bad. This is the dirty secret being kept quiet by crypto hedge funds and the big guys.  Be careful for when this blows up.