Circle has selected Bank of New York Mellon as its primary custodian for USD Coin (USDC) reserves. 

In the past six months, Circle has seen its valuation double to $9 billion and the market cap of its USDC stablecoin increase 60% to $51 billion. 

“Building trust, stability and resilience in the digital asset economy is foundational to Circle’s mission,” said Circle co-founder and CEO Jeremy Allaire. “As we continue to see exponential growth in USDC, the opportunity to work with BNY Mellon is one way we build bridges between traditional financial services and emerging digital asset markets, without sacrificing trust.”

It’s a timely announcement. 

Circle, Tether, and other stablecoin issuers have been under increasing pressure from U.S. lawmakers to fully back their tokens with assets like cash or Treasury bills. The fear, regulators and lawmakers have said, is that a run on tokens that aren’t fully backed by cash could be calamitous.

In December, fears surrounding commercial paper, or corporate loans, sent traditional and crypto markets plummeting after Chinese developer Evergrande missed an $82 million loan payment. Tether has since gone to great lengths to show commercial paper makes up a steadily decreasing portion of the reserves it uses to back USDT.

Tether, whose $81.9 billion market cap makes the U.S. dollar-backed stablecoin the third largest cryptocurrency after Bitcoin and Ethereum, released a new assurance report in February showing the portion of its reserves being held as commercial paper has decreased by 21% over the past quarter.

For its part, Circle has maintained that the majority of its USDC is backed by U.S. dollars. In July, the company released a report showing that 61% of its reserves were in cash or cash equivalents. The last time a report included a breakdown of USDC reserves in October, accounting firm Grant Thornton  said all of USDC’s $33 billion reserves were in cash or cash equivalents.

Meanwhile, the announcement marks another step towards embracing blockchain technology for BNY Mellon. 

In 2015, it invested in software company R3 and later joined its Marco Polo Network, a consortium of major financial institutions looking to use blockchain for international transactions. 

The bank has also invested in HQLAx, a fintech firm that runs on R3 technology; Fnality International, which raised an undisclosed amount of funding from Euroclear after being delayed by regulatory red tape; and custody and back-end crypto services provider Fireblocks.

“We are at a point in the evolution of our industry where the digitization of assets is presenting new and exciting opportunities to a broad range of market participants,” said Roman Regelman, CEO of asset servicing and head of digital at BNY Mellon. “Our role as custodian for USDC reserves supports the broader marketplace and brings value to our clients, founded on our role at the intersection of trust and innovation.”

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