NY Fed's Policy Change Threatens Circle's Payment Rail
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NY Fed's Policy Change Threatens Circle's Payment Rail

written by John Murphy | April 26, 2023

According to recent news, NY Fed’s Policy Change Threatens Circle’s Payment Rail. The New York Federal Reserve published new rules and regulations for the counterparties. Stablecoin issuers use the Fed’s system to consider its money market balancer, emitting uncertainty over intentions.

As per the 25 April statement, New York reported alterations in its guidelines. These guidelines dictate who can participate in reserve repurchase agreements (RRP).

Key Takeaways:

  • New York Fed’s updated guidelines negatively impact Circle’s chance of accessing the Fed’s reserve repurchase program.
  • BlackRock’s Circle Reserve Fund may become ineligible under the new guidelines.
  • 2a-7 regulations require money market funds to hold 10% daily and 30% weekly liquid assets.
  • Despite partnerships with BNY Mellon and Cross River, Circle previously held 80% of its treasuries and now focuses on global banking partnerships.
  • USDC debugging followed the collapse of Silicon Valley Bank in March 2022.

Katelyn Dibbert announced on Twitter that the Fed updates rules in the money market for counterparties. This is another blow to the stablecoin issuer circle.

Moreover, the updated guidelines obstruct the chance of acquiring access to the reserve repurchase program of the Fed. Fed’s RRP sells securities to acceptable counterparties and agrees to repurchase at the right time.

According to the New York Fed, acquiring such a system, “the counterparty cannot access RPP operations and is a natural extension of an existing business model.

BlackRock’s investment management company managed the Circle Reserve Fund, a money market Fund. These are 2a-7 funds, and under the Fed’s statement, these funds could be deemed ineligible and are only available to Circle.

Micheal Branch announced on Twitter that New York updated rules for accessing the money market of the Fed. These rules deemed stablecoin issuer Circle ineligible.

The 2a-7 government money market funds regulations aimed to ensure that investors the funds should meet the potential redemption in time.

Funds under this category must hold about 10% of the total assets in daily liquid assets. These funds also hold 30% of the total assets in weekly liquid assets.

Fed’s program approval allows earning interest Circle on the funds by investing the treasuring securities of low risk. It allows the issuer of stablecoin to help to maintain the stability of its stablecoin, US Coin, and to earn interest.

It was found that at some point in time, despite the expansion of the Circle’s ties with BNY Mellon and the brand new partnership with the Cross River, Circle had held about 80% of its treasuries and reserves.

Kevin announced on Twitter about not achieving the payment rail goals of Circle’s Fed due to the Fed’s policy change.

Moreover, Circle’s focus and interest have turned to more banking partnerships worldwide. According to the Pathy report, the collapse of Silicon Valley Bank held on March 10 led to debug of USDC.

It was the time of November when Circle announced that it had begun investing its fund into the reserve fund of Circle as a measure that lessened the risk and redemption ability of its coin for its holder.