Circle’s liquidity coverage is about double US banks, chief economist says

The liquidity coverage ratio for USDC is somewhere between 200% and over 800%, chief economist Gordon Liao says

article-image

Vladimir Kazakov/Shutterstock modified by Blockworks

share

USDC’s outflows were averaging around $25 million a day through August, but Circle’s chief economist says that the stablecoin provider is maintaining better liquidity coverage than most US banks. 

“We observe that liquidity coverage ratio, or equivalence to liquidity coverage ratio, for USDC is somewhere between 200% and over 800%, depending on what you actually use,” Gordon Liao, chief economist at Circle, said during a recent webinar. “We use empirically, the worst observed 30-day outflow rate…we still observe a liquidity coverage ratio of roughly 200%, which is double of what typical banking requirements are and what some of the typical US banks hold.” 

USDC’s market cap has dropped more than 8% since late June. Its trading volume has decreased about 67% in the same period of time. 

“Market pricing is subject to liquidity constraints of intermediaries, subject to market-maker conditions,” Liao said. “We’re used to seeing historically some fluctuations in the prices. But it is largely due to the fact that it is a very illiquid market.” 

Plus, the traditional banking system still has some control over the stablecoin provider’s ability to meet redemptions, but Circle has been able to satisfy redemptions.  

“Of course, we’re subject to the functioning of the fiat banking rails, so on a week where fiat banking rails are down, there is no way to actually do that redemption to fiat,” Liao added. “The overall cycle has processed over $300 billion of redemption requests over the last five years, which is very meaningful and that has shown how robust the system is,” he said.  

In terms of the overall stablecoin landscape, blockchain transactions have the potential to disrupt the payments landscape and create a safer and more structured ecosystem. 

“Blockchain has its own exchange, market integrity, efficiency and cost,” Liao said. “And in terms of market integrity, the secure and transparent ledgers for recording transactions make it more difficult for market participants to engage in fraudulent activities.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

AERODROME TEMPLATE.png

Research

Aerodrome is a "MetaDEX" that combines elements of various DEX primitives such as Uniswap V2 and V3, Curve, Convex, and Votium. Since its launch on Base, it has become the largest protocol by TVL with more than $495M in value locked, doubling Uniswap's Base deployment.

article-image

And a look into the newest name on the Trump ticket: Sen. JD Vance

article-image

Plus, Imran Khan’s intriguing experiment on the speeds of crypto onramps

article-image

The SEC has signaled a timeline to issuers that could lead to a July 23 launch for the ETH funds, people close to the process told Blockworks

article-image

PayPal has unequivocally made a name for itself as a crypto adopter among fintech giants

article-image

Also, a look into how the highly-debated SAB 121 could end up shaking out for crypto custodians

article-image

Vance, an Ohio Republican, is largely seen as crypto-friendly