Fintech firm Circle believes that the collapse of Silicon Valley Bank shows the need for its USDC stablecoin to be backed by the US Federal Reserve with its US dollars being held at the Federal Reserve.
The Boston-based company, which survived the collapse of Silicon Valley Bank by pulling $3.3 billion in cash from the troubled banktold a conference at the Gillmore Center for Financial Technology, that has long advocated regulation making it a federally supervised institution.
At the conference held at Warwick Business School, Circle’s Tarleton Watkins said that a long-term option for retail stablecoins could involve a wholesale central bank digital currency (CBDC) at the Fed as a support instrumentbut in the meantime, holding dollar reserves with the Fed rather than various financial partners would be a logical step in light of the SVB bankruptcy.
The senior policy specialist said: “In a way, the events surrounding the SVB act as a justification for what we have been advocating and it is a complete Fed reserve model where we could have access to money without risk.“, and I add: “Although cascading bank failures are rare, as in the 2008 financial crisis, this event with SVB put Circle through a very serious stress test, and we passed it.“.
“It shows the resilience of our business model and operating model. It also provides an excellent learning lesson and prepares us for the next steps on where regulation needs to go.“, he claimed.
Circle’s USDC is also backed by US dollars on a one-for-one basis, with its dollars split 80% US Treasury bills and 20% cash. In addition, it provides a monthly update of the reserves it has to set Circle’s stablecoin at $1.
Watkins added: “Regulatory clarity for new financial products and services like USDC may provide further incentive for traditional financial institutions to add digital assets to their balance sheets. Digital currencies must be fully backed with high-quality liquid assets, i.e. cash and short-term government bonds. They must also be prudentially regulated and supervised by federal or national regulators at the central bank or equivalent level. Digital currency issuers should have direct access to central bank accounts“.
On the conference held in Warwick
In a talk on CBDCs and stablecoins at the conference, Ganesh Viswanath Natraj, assistant professor of finance at the Gillmore Center for Financial Technology, supported the idea of central banks and stablecoin providers working together.
In that sense, Natraj said: “If stablecoins can be backed by digital pounds or dollars held entirely at a central bank, the central bank can regularly audit stablecoin providers’ reserves and impose capital requirements. If issuers kept a certain percentage of liquid digital currency reserves at the central bank, it would ensure they had funds to process redemptions. The central bank could also provide insurance for clients and having their support would reduce the risk of a run on stablecoins.“.
The conference also featured talks on DeFi and centralized finance from Anastasia Melanchrinos of cryptocurrency market data firm Kaiko, on crypto derivatives from analytics platform Block Scholes founder Eammon Gashier, and the growing industry metaversal from Nick Merritt of the Vault Hill metaversal platform.
While Amit Chaudhary of DeFi app builder Polygon revealed an investigation into DeFi liquidations, and Cynthia Campbell of Canada’s Alberta Securities and Exchange Commission and Amila Dissanayake of crypto analytics firm Chainalysis detailed the fraud problem and scams in the industry.
Ram Gopal, Academic Director of the Gillmore Center of Financial Technology, which aspires to become a global center of excellence for fintech research and was established by Warwick Business School with a £3 million grant from Clive Gillmore, Founder and Director Mondrian Investment Partners Group executive said: “The conference showcased the innovation and ingenuity at the heart of fintech and digital currencies, and how academic research centers like ours can play a vital role in this exciting sector. The Gillmore Center will be at the center of this new world, creating a place for researchers, policymakers, industry leaders, and tech entrepreneurs to come together and explore new opportunities and ideas.“.
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