The Federal Reserve Bank of New York (NY Fed) recently made a move that will have significant consequences on the plans of other entities. The NY Fed has curbed its counterparty criteria for the RRP (Reverse-Repurchase Program) this Wednesday in a way that might prevent Circle — the issuer of the second-largest stablecoin, USDC — from accessing the Fed facility that it sought to enter.<\/p>\n
https:\/\/twitter.com\/CryptonicDaily\/status\/1651020158830354440<\/p>\n
The NY Fed published a press release<\/a> earlier today, stating that the funds organized for a single beneficial owner, registered at the SEC as 2a-7 funds, will be deemed ineligible under the new rules. This would affect Circle Reserve Fund, which is managed by BlackRock Advisors, a global investment management giant.<\/p>\n The reverse-repurchase program allows selected counterparties to lend overnight to the Fed at a fixed rate. Typically, entities that can engage with the program involve banks, money market funds, and alike. At the moment, the fixed rate that they lend at is 4.8%.<\/p>\n Initially, the facility was launched to serve as a stabilization tool for the financial system. However, in addition to that, it became a very attractive vehicle for earning high yields with minimal counterparty risk. The program currently contains nearly $2.3 trillion in funds, showing how popular it is with its customers.<\/p>\n Circle’s idea was to join the ranks of accepted entities. With USDC accessing the program, it would create a stablecoin that would technically be backed by the Fed. However, according to the Bank Policy Institute, this might threaten the financial system’s stability.<\/p>\n Big blow for Circle as NY Fed changes policy towards stablecoins! With their USDC reserve fund now ineligible, it'll be harder for Circle to maintain stability & participate in the financial ecosystem. The impact on stablecoin issuers is yet to be fully understood. #crypto<\/a> #NYFed<\/a><\/p>\n — CoinUpz (@CoinUpz) April 26, 2023<\/a><\/p><\/blockquote>\n\n