Stablecoin comparison: USDC publishes its asset composition for the first time and its similarities and differences with USDT

Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

On July 20, the stablecoin project USDC released its May asset verification report (1). In this report, for the first time, like Tether (2), the assets backing USDC were broken down. As a company registered and operated in the United States, USDC provides an asset verification report almost every month. Compared to Tether, whose office is unknown and whose founder and CFO remain mysterious, USDC is generally considered to be more transparent and secure. So, what are the similarities and differences between the asset composition behind USDC and Tether?

1. The difference between attestation and audit

First of all, it should be noted that the accounting firm provided asset verification (attestation) rather than audit services for USDC and Tether. Compared with formal audits, asset verification is not as strict and does not examine the source of funds in detail. According to the [report](3) provided by the New York Attorney General’s Office, on September 15, 2017, Bitfinex transferred $382 million to Tether. After the auditing firm Friedman LLC completed the asset verification, Tether transferred the funds back, indicating that Tether did not have sufficient reserve funds at the time and had to embezzle Bitfinex’s funds.

Generally speaking, asset verification occurs after the audit, which is a verification of the audit results. For a company with a good audit history, asset verification is faster and sufficient to generate public trust. However, none of the companies that currently provide stablecoins have provided audit reports, which may be determined by the rapid development of the stablecoin industry itself. After all, auditing is time-consuming and labor-intensive, and the cryptocurrency industry is developing rapidly every day.

The company that provides asset verification for USDC is the accounting firm GRANT THORNTON LLP. Although it is not ranked among the top four in the world like the "Big Four", according to Wikipedia, GRANT THORNTON is the sixth largest accounting firm in the world. The company that provides asset verification for Tether is Moore Cayman, an accounting firm in the Cayman Islands, whose parent company is Moore Global. It is not ranked among the top ten in the world. Therefore, in terms of accounting firms, USDC is more rigorous than Tether.

2 Comparison of the asset composition of USDC and USDT

In USDC’s asset verification report, 61% of its assets are “cash and cash equivalents”, while in USDT’s composition, this part is 75.85%.

According to U.S. generally accepted accounting principles, "cash and cash equivalents" refers to cash and assets with similar liquidity to cash, including U.S. Treasury bonds, bank certificates of deposit, acceptances, corporate bills and money market funds.

Tether further broke down its holdings of “cash and cash equivalents,” of which 65.39% were company bills and only 3.87% were cash.

As for the “cash and cash equivalents” held by USDC, the capital verification report released by Circle this time did not break it down, so the outside world has no way of knowing what proportion of USDC’s reserves are cash. Moreover, among the breakdown of its total assets, 9% are commercial paper, so what are its cash equivalents?

According to the notes in the report, USDC's cash equivalents are assets that mature within 90 days in accordance with the US GAAP. In addition to "cash and cash equivalents", it also lists bank deposit certificates that mature within 13 months, treasury bonds that mature within three years, and corporate commercial bills that mature between 91 days and 13 months. This shows that USDC distinguishes the corporate commercial bills it holds, and those that mature within 90 days are classified as cash equivalents, while those that mature beyond 90 days are listed separately.

From this, we can infer that, like Tether, USDC’s asset composition includes commercial bills that mature within 90 days. As for the specific amount, since the issuance speed of USDC this year is no less than that of USDT, it can be roughly inferred that it has adopted a similar issuance strategy as Tether, and therefore short-term commercial bills may account for a considerable proportion of its cash equivalents.

3 USDC will become more transparent

On the 8th of this month, Circle founder Jeremy Allaire tweeted[4] that Circle will become the world’s most open, transparent, and fully-reserved stablecoin project. Judging from the release of the asset verification report, the transparency of USDC’s asset composition is not as good as Tether’s at present, but this is definitely only a temporary phenomenon.

Circle plans to go public in the fourth quarter of this year. According to regulatory requirements, it must disclose more detailed financial information to the outside world. Although Circle can avoid the tedious work of submitting [Form S-1](5) to the SEC through SPAC listing, it still needs to regularly publish financial statements to the public after listing, and its asset composition will be clearer at that time.

More openness and transparency will be the inevitable trend of the long-term development of stablecoin projects. On July 19, U.S. Treasury Secretary Yellen convened a meeting of the heads of the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Commission to discuss stablecoins. It can be seen that the regulation of stablecoins has been put on the agenda. For USDC, more openness and transparency are not only the needs of the company's development, but also the needs of the entire cryptocurrency industry. (Header picture from greeneryfinancial