Stablecoin Update: Circle Reports Anchorage Crypto Custodian Will Discontinue USDC, Prompting Pushback
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Anchorage Digital, a crypto custodian and federally chartered bank, announced it will begin directing institutional clients to convert USDC and other stablecoins into the rival token Global Dollar (USDG). This significant shift has received criticism from various industry players. The firm introduced a "Stablecoin Safety Matrix," which assesses stablecoins based on regulatory oversight and reserve asset management. USDC, the second-largest stablecoin with a supply of $61 billion, was judged unsuitable under Anchorage's security framework. Two smaller tokens, Agora USD (AUSD) and Usual USD (USD0), were also identified for removal. Stablecoins are cryptocurrencies whose prices are pegged to external assets, primarily the U.S. dollar.
"Following our Stablecoin Safety Matrix, USDC, AUSD, and USD0 no longer meet Anchorage Digital’s internal criteria for long-term resilience," stated Rachel Anderika, head of global operations at Anchorage. “We identified elevated concentration risks associated with their issuer structures, which institutions should evaluate carefully."
Anchorage Digital aims to support stablecoins that exhibit transparency, independence, security, and alignment with forthcoming regulatory expectations, she added.
The stablecoin market is growing increasingly competitive, with global banks, payment firms, and crypto companies striving for a stronger foothold in this expanding sector. Recent legislative efforts, including the GENIUS Act passed by the U.S. Senate, aim to establish clearer rules for the asset class and its issuers, potentially leading to broader adoption. Insights from financial institutions forecast substantial growth for this asset class, predicting it to increase from the current $250 billion to trillions in the coming years.
Anchorage rated USDC a score of 2 out of 5 for regulatory oversight and reserve management, noting a lack of substantive prudential oversight and that approximately 15% of Circle's reserves are held in cash at banks. It's noteworthy that USDC temporarily depegged in March 2023 when its partner bank encountered issues. In contrast, Tether's USDT, the largest stablecoin, received a higher rating, attributed to its regulation in El Salvador.
Industry reactions to Anchorage's decision were strong. Nick Van Eck, whose firm is behind AUSD, claimed Anchorage misrepresented facts regarding his stablecoin and did not disclose its financial interest in USDG, which is issued by Paxos and supported by a consortium that shares income from its reserve assets. "If Anchorage had simply removed USDC and AUSD to prioritize stablecoins with which they have a financial interest, that would be understandable as a business choice," he remarked. "However, discrediting AUSD and USDC over 'security concerns,' while sharing misleading information, is unprofessional."
Viktor Bunin, a protocol specialist at a digital asset exchange, criticized Anchorage's assessment. Jan Van Eck, CEO of an asset management firm related to AUSD, also expressed skepticism about the risk evaluation, highlighting the regulatory backing of AUSD’s reserve manager.
In a statement, Circle defended its strong compliance record and reputation in the industry, stating, "We adhere to the U.S. regulatory standards applicable to leading fintech and payments firms. Our USDC is fully backed by fiat-denominated reserves and supported by a robust liquidity network."
Support for both Circle and Agora came from outside their camps. "For the record, our company is not discontinuing USDC support," mentioned Chen Fang, chief revenue officer at a crypto custodian. "We are committed to providing safe, transparent settlement options for our clients using AUSD and USDC," added Joshua Lim, co-head of markets at a crypto prime broker.
