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Just how stable is stablecoin?

Making a $100 investment to find out how much faith to put in Boston-born Circle’s currency.

Brian Armstrong, CEO of Coinbase, spoke during May's Milken Institute Global Conference in Beverly Hills, Calif.PATRICK T. FALLON/AFP via Getty Images

At the moment, the world of cryptocurrency feels a little bit like that chaotic scene at the Bailey Bros. Building & Loan office in “It’s a Wonderful Life,” when everyone tries to withdraw their money simultaneously.

You can visit websites of companies that were once touted as revolutionary players in the new landscape of financial services, and find messages saying that withdrawals are temporarily on hold. Often, there’s a letter from the CEO trying to explain that everything will be OK, with an attempt at George Bailey-style candidness.

So what better time for me to take $100, and use it to try to understand the currency created by Circle, a Boston-born company that created its own digital currency, the USDC “stablecoin.” (USDC stands for United States Dollar Coin.)


While I’ve watched the evolution of bitcoin and blockchain from the sidelines, I have to confess I find it confusing, environmentally suspect, and attractive to lots of people who want to make a few bucks off the “greater fool” theory. Could my $100 shed some light on what a stablecoin can be used for, and how stable it is at this shaky moment for cryptocurrency?

I set up an account with the cryptocurrency exchange Coinbase in 2021, but never put any money into it. Coinbase, a publicly-traded company, gave me $5 in bitcoin for opening the account, and so I watched its value rise to about $7.15 last year, and then slide to $2 in July.

Coinbase seemed to be the easiest place for me to buy some USDC, by transferring money that was sitting in a regular old bank account. Coinbase charged me a $3.99 fee for converting my US dollars into the USDC digital currency, but the company also gave me an additional $5.00 in bitcoin as a reward — the crypto version of a free coffee mug with the bank’s logo, I guess.


What happened when my $100 moved into Coinbase? First of all, it was no longer insured by the Federal Deposit Insurance Corporation, which protects depositors in the event of a bank failure. Coinbase recently warned in an earnings report that if it happened to go bankrupt, my $100 might get tied up in bankruptcy proceedings, and I would be a “general unsecured creditor,” standing at the back of the line for reimbursement. (Coinbase reported a loss of $430 million in the first quarter, and laid off 1,100 people, but CEO Brian Armstrong tweeted that there is “no risk of bankruptcy.”)

What is USDC good for? It basically took my $100 in old-fashioned dollars, and made it easier for me to move the currency around the blockchain universe, a kind of mirror-world of money that includes bitcoin, Ethereum, and hundreds of other currencies that are tracked using software protocols and computer networks outside of the control of banks, brokerages, and governments.

One use for USDC is for making international payments, explained Matt Walsh, cofounder of the venture capital firm Castle Island Ventures, which invests in blockchain companies. Walsh says that his firm uses the USDC stablecoin to pay some of its contract workers. “It’s a much better user experience, versus moving money through the wire system,” he says. Another use is to treat USDC as a kind of money market account if you are interested in trading in and out of cryptocurrencies, to try to buy low and sell high, Walsh says. If you predict a cryptocurrency like Ethereum is about to fall, you can shift your holdings back into USDC, which is intended to always maintain a value of $1 — hence the name “stablecoin.”


One thing I’d read about was various online exchanges that would pay upwards of 10 percent annual percentage yield on a USDC deposit, in return for the right to lend it to others. One of Coinbase’s partners, Singapore-based Vauld, advertised a 12.6 percent annual percentage yield. But when I tried to move some of my USDC to Vauld, I encountered a note from its CEO, dated July 4: “We have made the difficult decision to suspend all withdrawals, trading, and deposits on the Vauld platform with immediate effect.” So my USDC stayed with Coinbase, where it was earning a measly 0.15 percent APY (still better than my bank account, but significantly less than many traditional online saving accounts.)

I did take $25 of my USDC and turned it into ALGO, a cryptocurrency created by an MIT professor, Silvio Micali, just to watch what might happen. (Like many cryptocurrencies, it is down about 85 percent since last September — so only one way to go, right?)

I took another $20 of my USDC, and on the advice of Manasi Vora, a VP at the blockchain startup Skynet Labs, donated it on a site called The Giving Block. I chose the Ukraine Emergency Response Fund, a bundle of nonprofits that are delivering aid in that country. I instantly received an e-mailed tax receipt from a real organization, with a real tax ID number. A few benefits to this kind of digital donation: no check writing, no stamps — and presumably, no one getting my mailing address to send me endless donation appeals.


But what about the $45 that remained of USDC holdings? Circle, the company that launched the USDC stablecoin in 2018, started issuing more detailed monthly reports in July — amidst the turmoil in the cryptocurrency world — to disclose what exactly backs up my $45 in the USDC digital currency, should I want to convert it back to real dollars. Circle said, in an unaudited statement, that $55.6 billion in USDC coins held by people like me are backed by $55.7 billion in reserves: a mix of short-term US treasury securities and cash held at banks, including Bank of New York Mellon and Citizens Trust. (The ratio is about 75 percent treasury securities and 25 percent cash.)

Circle chief financial officer Jeremy Fox-Geen wrote recently in a blog post that those reserves are held in segregated accounts: “We cannot lend them out, we cannot borrow against them, and we cannot use them to pay our bills.” If Circle went bankrupt, he continued, those reserves “should remain redeemable at face value, shielded from Circle creditors, and separated from a bankruptcy estate.”

But John Beccia, a consultant who works with financial services clients, and a former general counsel at Circle, points out that there is no legal precedent for what would happen to my assets if Circle should go kaput.


Ed Zitron, a blogger who occasionally scrutinizes the world of crypto, points out that even though Voyager Digital, a cryptocurrency exchange that is publicly traded on the Toronto Stock Exchange, stored its customers’ cash in accounts at a federally insured bank, Metropolitan Commercial Bank, “they’ve had to specifically ask the bankruptcy court in their filings to let people access it — but it’s still not accessible.” (The New Jersey-based company sought Chapter 11 bankruptcy protection in early July.) “Circle could die and take USDC with it,” Zitron says. “I’m very anxious about how all of this goes.” Zitron says while he has owned small amounts of USDC in the past, he doesn’t hold any now.

A 2021 Circle filing with the Securities & Exchange commission — the company is in the process of going public — noted that it has a history of losses (losing $17.3 million in 2020, and $2.6 million in the first quarter of last year). But a Circle spokesperson, Rachel Busch, told me that there have been no layoffs at the company in 2022; rather, Circle has hired “hundreds of employees since the beginning of the year, and plans to continue strategic hiring over the next 18 months,” she says.

Will Circle’s USDC coin be one of the solid pillars left standing as the cryptocurrency world rebuilds from the quakes of 2022? My $45 is riding on it.

Scott Kirsner can be reached at kirsner@pobox.com. Follow him @ScottKirsner.