Amidst the mayhem surrounding FTX and the Binance deal, there are currently numerous rumors circulating about possible contagion effects. If the takeover by Binance does not materialize, effects similar to the demise of Celsius and Terra Luna could loom.
At that time, other well-known companies such as Three Arrows Capital were brought down or, as in the case of BlockFi, rescued shortly before collapse. However, the liquidations triggered a cascading effect on the market, ultimately dropping the Bitcoin price from $40,000 to $20,000.
FTX Mess Triggers Doubts About Stablecoin Collateral
Colin Wu, Chinese reporter, has addressed the rumors that both Circle’s USDC and Tether (USDT) may be involved in the mess.
Via Twitter, he called on the CEOs of both stablecoin companies to disclose more about their financial relationships with FTX and Alameda so the crypto community knows if there is a risk.
As Wu noted, on-chain data shows that many USDCs are moving from Circle to FTX. Additionally, there have been reports that Alameda is Tether’s second largest issuer. However, Tether CEO Paolo Ardoino was quick to debunk the rumors:
To be clear: Tether does not have any exposure to FTX or Alameda.
0. Zero. Maybe is time to look elsewhere. Sorry guys. Try again.
Ardoino further explained that Alameda has issued and redeemed many USDT in the past, according to the demand by Tether customers. “But no credit exposure has been matured,” the Tether CEO said. At the same time, Ardoino squared off with USDT critics, saying:
Yup. But seems like media for the last 5 years got obsessed by tether only, creating heroes and electing white knights. It turned out that tether was running a tight ship, always being fully collateralized. Media should learn from this lesson too.
For his part, Circle CEO, Jeremy Allaire, also wasted no time in dismissing the rumors. Allaire expressed that “Circle has no material exposure to FTX and Alameda.” Moreover, he clarified:
Circle has never made loans to FTX or Alameda, and has never received FTT as collateral, and has never held a position in or traded FTT. In any case, Circle does not trade on its own account.
As Allaire discussed, the exchange of Bankman-Fried has been a client of Circle for 18 months, like any other institutional client. In addition, Circle is a small shareholder of FTX, as well as FTX is a small shareholder of Circle. But Circle is also a tiny shareholder of Kraken, Coinbase, and BinanceUS.
One hundred percent of USDC flows from Circle to FTX or Alameda rely on automated systems of 1:1 dollar settlement to mint USDC and redeem USDC, Allaire explained.
Regarding collateral for USDC, Allaire clarified that about 80% of USDC reserves are held in U.S. treasury bills with maturities of 3 months or less and are held at BNYM. The remaining cash reserves are held at 7-8 banks in fully segregated accounts for the benefit of USDC holders. There are certificates for everything, Allaire concluded.
In this respect, the crypto community seems not to have to worry about its most important stablecoins – at least one good news today. Meanwhile, the Bitcoin price below the important $18.000 mark at press time.