The Registration Statement for Stablecoin issuer Circle Internet Group, which went public earlier this month, contains a number of discussions of stablecoins and tokenized money market funds. We quote from a number of these below. Discussing "Our role in driving stablecoin adoption," they write, "We have built one of the largest and most widely used stablecoin networks. At the foundation of the Circle stablecoin network are our payment stablecoins, USDC -- which, according to CoinMarketCap, is the second largest stablecoin as measured by the amount of stablecoins in circulation with a 24% share of the stablecoin market as of December 31, 2024 -- and EURC -- which, according to CoinGecko, is the largest euro-denominated stablecoin as measured by the amount of stablecoins in circulation as of March 28, 2025." (Note: Crane Data shows Circle Reserve Fund Inst (USDXX), the main collateral behind USDC, with $52.7 billion in assets yielding 4.23% on 6/10.)
Circle tells us, "USDC and EURC are liquid, stable, and digitally native forms of U.S. dollars and euros, respectively, built on an open protocol and a regulatorily compliant platform. Each maintains 24/7, borderless, and near-instant value transfer capabilities. USDC and EURC are redeemable on a one-for-one basis for U.S. dollars and euros, respectively, directly from us by Circle Mint customers ... as well as by end-users that are not Circle Mint customers in our role as the redeemer of last resort.... In addition, all end-users can sell or exchange USDC and EURC in the secondary market. USDC and EURC and the overall Circle stablecoin network are further discussed under '`Our platform, products, and ecosystem.'"
They comment, "Circle Tokenized Funds are regulated yield-bearing investments for collateral use in capital markets. We believe that certain major trading firms have moved, and will increasingly move away from, using stablecoins as collateral in favor of TMMFs. However, other TMMF issuers may be limited in their ability to provide significant instantaneous redeemability for equivalent underlying assets. We believe that the ability of a well-regulated stablecoin such as USDC to provide near-instantaneous redemption can offer a substantial advantage for this emerging trend of using TMMFs as collateral for margin trading on various digital asset trading platforms, maximizing capital efficiency in the flows between settlement assets and collateral and at the same time, reducing counterparty execution risk. Moreover, TMMF issuers typically operate on a single blockchain or have limited interoperability across different blockchain platforms."
Circle's prospectus says, "To serve this objective, on January 21, 2025, we acquired Hashnote and its TMMF, USYC, which is a tokenized product offered in reliance upon an exemption to the registration requirements of the Securities Act. USYC serves as an onchain representation of the shares in Hashnote International Short Duration Yield Fund Ltd. ('SDYF') and is intended primarily for use as collateral on digital asset trading platforms. Unlike payment stablecoins that offer no yield, TMMFs like USYC offer yield to the token holders that is generated from its invested assets consisting primarily of reverse repurchase agreements on U.S. government and government-backed securities and short-term U.S. Treasury securities. According to RWA.xyz, USYC is the largest onchain TMMF in terms of assets under management, with approximately $1.6 billion in assets under management as of December 31, 2024."
It states, "On February 13, 2025, we received approval to issue USYC and offer Circle Mint accounts out of Bermuda under our existing Digital Assets Business Act ('DABA') License granted by the Bermuda Monetary Authority ('BMA'). We plan to integrate USYC into the Circle stablecoin network, offering eligible customers the ability to move between the non-yield bearing Circle payment stablecoins and USYC at the settlement speed of the blockchain."
Discussing "Circle Reserve Management," they write, "Sound reserve management (ensuring liquidity and preservation of reserve assets) is central to our operations. The Circle stablecoin network benefits from the strength, operating resiliency, and risk management capabilities of the leading financial institutions that are part of our reserve management infrastructure. We hold reserves in a manner designed to ensure liquidity and preservation of reserve assets.... [W]e (i) limit Circle stablecoin reserves to highly liquid financial instruments, (ii) hold reserves in accounts that are titled FBO holders of USDC and EURC, respectively, and (iii) do not lend, borrow against, or encumber the reserves."
Circle explains, "As of December 31, 2024, we held approximately 85% of USDC reserves in the Circle Reserve Fund, a government money market fund pursuant to Rule 2a-7 under the Investment Company Act of 1940, as amended (the '1940 Act') managed by BlackRock, one of the world's largest asset managers, and available only to us. The assets within the Circle Reserve Fund are held in the custody of The Bank of New York Mellon ('BNY'), one of the largest asset custodians in the world.... The remaining portion of USDC reserves (typically 10-20%) are held as cash in accounts that are titled FBO holders of USDC, primarily with banks designated by the Financial Stability Board as global systemically important banks ('GSIBs').... A small fraction of USDC reserves is held as cash within several additional banks, which facilitate the flow of funds from reserves to Circle Mint customers. Currently, all EURC reserves are held only in cash."
They add, "Core to our reserve management infrastructure is reporting and independent assurance. Since the launch of USDC in September 2018 and EURC in June 2022, we have provided full transparency into assets comprising Circle stablecoin reserves, first on a monthly basis (on our website), then on a weekly basis (also on our website), and now, in the case of the Circle Reserve Fund, on a daily basis (on BlackRock's website). Furthermore, since USDC's launch, we have provided the public with independent, third-party monthly assurance over the value and composition of these assets from a leading public accounting firm (currently, a Big Four firm), whose reports are available for both USDC and EURC on our website."
Circle warns, "Our current or future competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services, which could attract end-users and customers away from our products and services. For example, we are seeing a rapidly evolving market structure in digital asset trading markets, and certain major trading firms are moving towards TMMFs as a form of collateral. Particularly in the current high interest rate environment, the option to invest in TMMFs or other yield-bearing digital assets has become increasingly attractive relative to holding non-yield bearing stablecoins.... Therefore, as TMMFs become more readily accessible and widely integrated on blockchains as a form of collateral in margin trading, we expect to continue to see a shift toward the use of TMMFs or other yield-bearing digital assets, which could adversely affect the competitiveness and usage of USDC and EURC in this type of use case."
They write, "With significant growth in the stablecoin market and an increasing understanding that it represents one of the largest potential new markets for financial and payments infrastructures, we expect to continue to see intense competition. In addition, the emergence of yield-bearing digital assets represents an additional source of competition, particularly in light of the current high interest rate environment, which has amplified the opportunity cost of holding stablecoins relative to other yield-bearing digital assets."
Circle's prospectus also says, "As an example of such an adverse impact, the amount of USDT in circulation (the largest stablecoin by stablecoins in circulation, issued by Tether) increased while the amount of USDC in circulation declined for nearly a one year period from late 2022 to late 2023, which we believe reflects the different use cases and underlying competitive dynamics for the two stablecoins. New categories of products that provide novel and attractive features, such as yield-bearing digital assets (including TMMFs), could also gain market acceptance at any time, which may compete with Circle stablecoins and cannibalize our market share, particularly if we fail to anticipate such market shifts or are slow to enter into these nascent markets."
They state, "In addition, we intend to issue TMMFs, including USYC, through our acquisition of Hashnote. The issuance of TMMFs represents a new facet of our business, and there is no guarantee that we will be successful. USYC may not gain traction relative to existing TMMFs and new TMMFs that compete with USYC may enter the market at any time. In addition, the success of USYC may adversely affect the competitiveness of USDC and EURC as margin collateral, as trading participants naturally gravitate towards yield-bearing digital assets in this particular type of use case. Our entry into this market may also impact our marketing strategy, and we may not be able to anticipate how our customers, shareholders, and the market will perceive and respond to any such shift. The pursuit of new product offerings may also divert management's attention and redirect the flow of resources away from USDC and EURC. The risks associated with issuing a TMMF in general, and the specific risks of incorporating them into our existing business model, could hinder our ability to successfully implement our business plans and achieve our strategic objectives."
They tell us, "Privately issued stablecoins may be subject to the risk of significant and concentrated redemption requests, even when they are fully reserved with high quality liquid assets such as cash and short-dated U.S. government obligations. If we experience significant and concentrated redemption requests with respect to one or more Circle stablecoins, we may need to liquidate a significant portion of Circle stablecoin reserve assets to meet such requests. In extreme cases, the market for the short-dated U.S. government obligations held by the Circle Reserve Fund might not be sufficiently liquid for BlackRock to liquidate them in a way that allows us to meet redemption demands in a timely manner."
Circle adds, "Market participants have increasingly shown concern about the sufficiency and liquidity of reserves for dollar-denominated stablecoins such as USDT and USDC, including due to issues in the traditional financial markets. For example, in March 2023, we announced that we had initiated transfers of the more than $3 billion of deposits from Silicon Valley Bank ('SVB') to other banks, but those transfers failed to settle before the Federal Deposit Insurance Corporation (the 'FDIC') placed the bank into receivership. Although all of these funds were ultimately made available and transferred to new banks, concerns related to Circle's access to these funds caused USDC to experience a temporary price dislocation on certain secondary trading markets during the period when banks were closed and until the resulting backlog of redemption requests had been cleared, and the amount of USDC in circulation decreased thereafter."
Finally, they comment, "In addition, given the foundational role that stablecoins play in global digital asset markets, stablecoin growth has been tied closely to growth in digital asset markets. As a result, systemic risks that manifest themselves in the digital asset markets may lead to higher-than-normal redemption requests on Circle stablecoins, which could lead to significant and concentrated redemption requests with respect to one or more Circle stablecoins. The collapse of TerraUSD and LUNA in May 2022 underscored the risks associated with algorithmic tokens, which are continuing to play out as trading firms and retail and institutional lenders are facing liquidation and insolvency in the aftermath, as reflected in the Voyager Digital Ltd. and Celsius Network LLC insolvency proceedings, among others.... The introduction of a government-issued digital currency could eliminate or reduce the need or demand for private-sector issued stablecoins, or significantly limit their utility. National governments around the world could introduce CBDCs, which could in turn limit the size of the market opportunity for USDC, EURC, and other potential future Circle stablecoins."
