USDC stablecoin issuer Circle has acquired Hashnote, the issuer of the largest tokenized money market fund (MMF), USYC. Hashnote was incubated by DRW’s crypto arm Cumberland Labs and currently has a market capitalization of $1.25 billion. That’s twice BlackRock’s money market fund BUIDL.
While Hashnote has done a great job of getting USYC accepted as collateral by the likes of option exchange Deribit, as of today it is very reliant on a five month-old stablecoin, Usual. In fact, 97% of the USYC MMF is held by the Usual protocol, which is starting to diversify its reserves.
Circle believes it will be able to make USYC the ‘preferred’ yield bearing asset with crypto exchanges, custodians and prime brokers. Together they want to make it even more seamless to move between stablecoins and tokenized MMFs.
“We helped invent tokenized cash, and are now leading the way in tokenized money markets, both of which we believe will become essential to the future of the global financial system,” said Jeremy Allaire, Circle CEO and Chairman. “Circle’s acquisition of Hashnote and our strategic partnership with DRW-affiliate Cumberland are crucial to driving and delivering these products at scale.”
Targeting TradFi and tokenized collateral
In many ways, the two firms share a common goal – to become more widely used in the traditional finance space. While Hashnote is used as collateral for the Usual stablecoin, last October CEO Leo Mizuhara told Ledger Insights that he views crypto as a stepping stone to getting these tokenized MMF accepted in the traditional finance (TradFi) sector.
“My long game for the collateral product at least (is) that we want to be in the CME, in Eurex and LCH,” he said, calculating the collateral between them at around $90 billion, a figure substantially larger than crypto sector collateral. Short term he was looking to roll out the offering with crypto exchanges Binance, ByBit and OKX. With Trump now in power and Caroline Pham as the acting CFTC Chair, it raises the likelihood of tokenized collateral being greenlighted for use as margin on the CME.
Likewise, Circle has long been keen to see USDC as the preferred stablecoin for TradFi. Given it is the largest onshore regulated stablecoin, it stands a better chance than Tether.
USDC on the Canton network
Hence, as part of the deal, Circle also announced a collaboration with high speed trading firm DRW and its crypto arm Cumberland. Plus, a native version of the USDC stablecoin will be launched on the Canton Network. DRW was the founder of Canton developer Digital Asset, although the blockchain firm now has many institutional investors.
Several TradFi institutions use Digital Asset’s Canton technology such as Broadridge, BNP Paribas, Deutsche Börse, Goldman Sachs and HSBC. Some of them have opted into the Canton Network, including Broadridge and DRW Cumberland. Broadridge alone supports $1.5 trillion in tokenized repo monthly.
Hashnote already launched USYC on Canton. It’s conceivable that the CFTC may be more comfortable initially allowing institutions to use tokenized collateral on the public permissioned Canton network, before supporting permissionless blockchains.
“By utilizing the Canton blockchain, which offers configurable privacy, for USDC, and acquiring Hashnote, which issues USYC, Circle unites the key elements necessary to enable 24/7 collateral and variation margin movement across both crypto and traditional markets,” said Don Wilson, CEO and Founder of DRW.
Under the hood, USDC and USYC have something else in common. USYC is not your typical MMF. It doesn’t actually invest in Treasuries. Instead, it uses overnight repo, so it holds Treasuries as collateral for lending money to banks. USDC has BlackRock managing its reserves, but the majority of the assets are also in repo, with less than 40% directly invested in Treasuries.
