Stablecoins have become a popular way for traders to move funds between different cryptocurrencies without having to deal with the volatility of fiat currencies. However, these stablecoins are only as good as the reserves that back them. In this article, we will be exploring the current standing of the three biggest stablecoins on the market, USDT, USDC, and BUSD, and dive into the nitty-gritty of the public reserves reports released by each.
The Importance of Stablecoin Reserves:
Stablecoins are meant to be backed one-to-one by fiat currencies, meaning that for every stablecoin in circulation, there should be an equal amount of dollars held in reserve. However, not all stablecoins are created equal, and some may have reserves that are not entirely made up of fiat currencies.
USDT – The Reigning Champion:
USDT is the largest stablecoin on the market, with a circulating supply of about 66 billion, which is over 20 billion ahead of USDC, the second-largest stablecoin. USDT has faced its fair share of controversy throughout the years, with questions about the reserves backing it.
When USDT launched, its website claimed that every tether was backed one-to-one by traditional currency held in their reserves. However, during a 2019 court case, it was revealed that USDT wasn’t backed 100% by USD but instead a combination of different assets, including cryptocurrencies, corporate bonds, precious metals, and short-term loans. After the controversy, USDT changed its tune on its website. In May 2021, USDT revealed a breakdown of its reserves for the first time ever since its launch in 2014, as a requirement of the court case settlement.
USDT’s reserves break down as of December 2022 reports that over 82 percent of its reserves are held in cash, cash equivalents, other short-term deposits, and commercial paper. Nine percent is in secured loans, five percent to corporate bonds, funds, and precious metals, and four percent in other investments. USDT has reduced its exposure to commercial paper drastically from 49 to pretty much zero, which has now been replaced mostly with US treasuries. Ethereum co-founder Vitalik Buterin tweeted in November that USDT’s recent attestation has exceeded his expectations.
USDC – The Safe and Transparent Alternative:
USDC came into the picture four years after USDT, and USDC issuer Circle has been publishing third-party monthly attestations of its reserves since its launch four years ago. USDC currently has a circulating supply of about 43 billion and is positioned as a safer and more transparent alternative to USDT.
USDC’s reserves are made up of 61.9% cash and cash equivalents, 13.4% U.S. treasuries, 8.7% commercial paper, and 16.1% other investments, including corporate bonds, funds, and precious metals. USDC’s exposure to commercial paper is relatively low compared to USDT, and its U.S. treasuries holdings are higher.
BUSD – The Newcomer:
BUSD is a stablecoin launched in 2019 by Paxos and is growing in popularity, with a circulating supply of about 15 billion. Paxos publishes monthly attestation reports, and the latest report shows that BUSD’s reserves are made up of 82.5% cash and cash equivalents, 10.5% U.S. treasuries, and 7% other investments.
Conclusion
In conclusion, stablecoin reserves are crucial for maintaining the stability and trust of these cryptocurrencies. USDT, USDC, and BUSD are the three largest stablecoins on the market, and each has its own approach to reserves. USDT, despite facing controversies in the past, has made strides in increasing the transparency of its reserves, with over 82% held in cash, cash equivalents, and short-term deposits. USDC, on the other hand, positions itself as a safer and more transparent alternative to USDT, with a relatively low exposure to commercial paper and higher U.S. treasuries holdings. Meanwhile, BUSD, the newcomer, has a reserve breakdown that is dominated by cash and cash equivalents, with U.S. treasuries and other investments making up the remainder. As the stablecoin market continues to grow and evolve, it is important for investors and traders to keep a close eye on the reserve reports of these stablecoins to ensure the stability and security of their investments.
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