The Crypto Roundup: 18 May 2023 | CryptoCompare.com

The issuer behind the popular USDC stablecoin, Circle, has started undertaking significant rebalancing of its reserves in a bid to protect them against a potential default on U.S. government debt.

As revealed on its website, the Circle Reserve Fund, under the guidance of the global investment powerhouse, BlackRock, has injected $8.7 billion in overnight repurchase agreements, or repos, into its portfolio as of May 16.

Its so-called tri-party repo agreements rope in banking titans such as BNP Paribas, Barclays, Goldman Sachs, and the Royal Bank of Canada. Overnight repo agreements serve as short-term collateralized loans.

These repo agreements essentially see a borrow – in this instance dealing with U.S. Treasurys – sell a security for immediate cash and agree to repurchase the collateral the following day at a marginally higher price. The difference in price is an implicit overnight interest rate.

The agreement allows deep-pocketed institutional investors to allocate their surplus cash to Wall Street dealers seeking funds. According to a Circle spokesperson, it “provides additional protection fo the USDC reserve in the unlikely event of a U.S. debt default.”

The decision is in response to the ongoing standoff in Washington, as U.S. lawmakers engage in intense discussions with the Biden administration concerning an increase in the nation’s debt ceiling – the government’s legal borrowing limit.

According to Treasury Secretary Janet Yellen, the Treasury Department may exhaust its cash reserves by early June, unless there’s an upward adjustment of the debt ceiling.

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• Source: https://www.cryptocompare.com/email-updates/daily/2023/may/18/