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Circle, an issuer of the world’s second-largest stablecoin USDC, has announced plans to be 100% backed by cash and short-term U.S. Treasuries by September. The company’s most recent attestation showed USDC’s $22 billion supply was backed by only 61% cash and cash equivalents.

“Mindful of community sentiment, our commitment to trust and transparency, and an evolving regulatory landscape, Circle, with the support of Centre and Coinbase, has announced that it will now hold the USDC reserve entirely in cash and short duration US Treasuries,” Centre said in a blog post on Sunday. “These changes are being implemented expeditiously and will be reflected in future attestations by Grant Thornton.”

Until August, Coinbase’s website falsely described USD Coin as backed 1:1 by dollars “in a bank account.” The company changed the description after being contacted by Bloomberg News earlier this month.

However, it was revealed in July this was no longer the case, with Circle disclosing in an “attestation” from auditors Grant Thornton that cash made up just over 60% of USD Coin’s reserves. The other 40% was backed by various forms of debt securities and bonds.

The reserves were only in cash until March 2020, when the company added U.S. Treasuries to accommodate the coin’s rapid growth, Circle spokesperson said. The coin’s reserves moved to a broader portfolio of investments in May 2021, and by the end of September, the reserves will be completely in cash and short-term Treasuries.

Circle had indicated earlier in the month that it wishes to become a full-reserve national digital currency bank in the U.S., making this announcement an important step in that process. Company CEO and co-founder Jeremy Allaire said of the plan: “We believe that full-reserve banking, built on digital currency technology, can lead to not just a radically more efficient, but also a safer, more resilient financial system.”

The project appears to have the backing of the Federal Reserve Governor Christopher Waller, who supports the creation of a private sector digital currency as opposed to central bank digital currencies (CBDCs), which are growing in popularity elsewhere in the world. “The private sector is already developing cheaper payment alternatives to compete with the banking system … Hence it seems unnecessary for the Federal Reserve to create a CBDC to drive down payment demands we see by banks,” Waller said.

USD Coin is the second-largest stablecoin globally, with $27 billion worth of coins in circulation. In July, Circle revealed plans to go public via special purpose acquisition corporation (SPAC) Concord Acquisition Corp. in a deal that would value Circle at $4.5 billion.

Tether, the largest stablecoin with $75 billion in circulation, has drawn scrutiny from regulators amid fears it doesn’t have enough assets to support its peg to the greenback. Earlier this year, Tether’s issuer revealed that just 2.9% of its reserves were held in cash. The vast majority of its reserves were made up of commercial paper, a form of unsecured, short-term debt that’s riskier than government bonds. This sparked fears that a sudden mass redemption of Tether tokens could destabilize short-term credit markets.

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