TL;DR

CENTRE, a consortium of companies (Circle, Coinbase, etc.), governs and issues USDC. CENTRE stakeholders earn returns on short-dated US treasuries, part of USD reserves.

Retail users who hold USDC independently have no legal rights to earn these returns and hence, are not passed to them and miss out on significant earning potential.

Circle is the primary issuer of USDC stablecoin, and it works in partnership with Coinbase, a cryptocurrency exchange, through a joint venture called CENTRE. CENTRE is a consortium of companies responsible for the governance and development of the USDC stablecoin.

Over the past few years, USDC has become a widely-used stablecoin, gaining support from many cryptocurrency exchanges and wallets. The total market capitalization of USDC stands at more than $40 billion. USDC is issued 1:1 based on USD reserve components (US dollars, US treasuries, etc.), and its issuance happens on various smart contract platforms such as Ethereum, Solana, Polygon, etc. BlackRock, a global investment management company, manages the Circle Reserve Fund, which consists of short-dated US treasuries and cash, and is custodied at The Bank of New York Mellon.

USDC undergoes periodic audits and monthly attestation. As of 9th Feb 2023, the total USD reserves components are $42.3 billion dollars, and 42.2 billion USDC are issued and are circulating in the market.

• Out of $42.3 billion, $10.8 billion (25%) is held in cash
• $31.6 billion (75%) in short-dated US treasuries

75% of short-dated US treasuries state that Circle, as a company and other stakeholders associated with CENTRE, earns periodic returns when the treasuries mature.

How much do CENTRE stakeholders earn?

CENTRE is a consortium of companies (Circle, Coinbase, etc.) that are public and private entities with no publicly available cumulative earnings or financial reports. With Coinbase,a public company, disclosing its Q4 2022 financials, it is estimated that a significant part of its interest income ($327 million in 2022) comes from earnings from USDC. In the Coinbase-filed public 10k form, they stated that Coinbase earns interest income from the revenue agreement they hold with USDC.

Since Circle is a private company, it is not possible to know the exact earnings estimates. However, it is estimated that Circle may have generated +$300 million in 2022 due to the Fed’s rising interest rates, thereby increasing its overall earnings.

While the CENTRE stakeholders earn returns on short-dated US treasuries (i.e., components of USDC reserves), they are not obligated to pass on the returns to retail consumers holding USDC. Hence, consumers with USDC do not have any legal rights to earn returns generated by USDC’s backing reserves.

How much do USDC holders lose?

Holding USDC is similar to cash deposits (USD) in your Bank of America or Wells Fargo bank account but without the FDIC Insurance. Consumer banks lend out your deposited money and profit by charging interest to financial institutional lenders. Over the last seven months, the US Fed has continued increasing its Fed rates to combat inflation, resulting in higher yields for all US treasuries. However, the higher yield returns are not passed on to bank account holders who deposited their hard-earned US dollars with the bank.

CENTRE as a consortium is similar to a traditional financial banking system. Consumers purchased USDC, but the expected returns earned by CENTRE stakeholders are not passed on to USDC holders who hold USDC independently on a crypto exchange or web3 wallet. Hence, based on estimated of earnings by CENTRE stakeholders, USDC holders lose $1.34 billion in yearly savings (calculation is based on approximate profits earned on $31.4 billion in US short-dated treasuries).

As a US citizen, you can earn a return on your US dollars by purchasing US treasuries independently. In comparison, you can make returns on your USDC through crypto services like lending, etc. However, there are many hidden market and contingency risks that USDC holders are binded by when they lend out their USDC. In 2022, many crypto-lending services shut down primarily due to failure to manage these risks.

Juno provides the best way to earn a 5% bonus directly from your FDIC-insured checking account (banking services provided by Evolve Bank & Trust). If you have USDC on any crypto exchange or crypto service, you can deposit the same on Juno and easily swap with USD(1:1) in a single click. Now, your USD balance will earn a 5% bonus on a $50K deposit and a 4% bonus on deposits above $50k and up to $250K.

Reference:

1. Under Coinbase public 10K form filed, Coinbase earns a certain percentage of interest income from their revenue agreement with USDC is covered on page 111.
2. Circle’s revenue estimates of +$300 million are based on the Messari Report and publicly shared by Kunal Goel, one of the researchers at Messari.

QUICK LINKS

Is your cash on US crypto exchanges FDIC insured
How does Juno give a 5% annual bonus on cash?
What makes Juno Different?
How-to-claim-FDIC-insurance?