Circle USYC

Circle USYC: The Tokenized Money Market Fund Reshaping Institutional Collateral

Circle USYC (USYC) is a yield-bearing ERC-20 token that represents shares in the Hashnote International Short Duration Yield Fund Ltd., a Cayman Islands-registered mutual fund investing in short-term U.S. Treasury bills and reverse repurchase agreements. The token accrues yield through price appreciation rather than dividend distributions, distinguishing it from conventional stablecoins that maintain a static 1:1 dollar peg.

From Trading Desk Experiment to Tokenized Treasury Giant

The tokenized Treasury market reached approximately $10 billion by January 2025, with USYC and BlackRock's BUIDL together accounting for roughly one-third of that value. USYC currently trades around $1.11 with assets under management fluctuating between $1.4 billion and $1.7 billion depending on institutional flows.

The token emerged from a collaboration between DRW founder Don Wilson and Leo Mizuhara, who ran systematic trading for fixed income, currencies, and commodities at DRW before launching Hashnote in February 2023. Cumberland Labs, the Web3 incubator backed by DRW partners, provided $5 million in seed capital to build what Mizuhara described as the convergence of traditional and decentralized finance.

Circle acquired Hashnote in January 2025, gaining control of what RWA.xyz data at the time identified as the largest tokenized Treasury and money market fund in the world with $1.52 billion deployed.

The deal carried strategic significance beyond asset accumulation. Circle, which generates substantial revenue from USDC (USDC) reserves but does not share yield with stablecoin holders, gained a product that redistributes 90% of Treasury returns to token holders while retaining 10% as a management fee.

The Architecture Behind Yield-Bearing Tokenization

USYC operates as an ERC-20 token deployed on Ethereum using an ERC-1967 proxy contract pattern, which allows Circle to upgrade the implementation logic without changing the token's contract address. The smart contract code has been externally audited and verified on Etherscan.

Beyond Ethereum, USYC exists natively on multiple networks including Solana (using the SPL-22 standard), Base, BNB Chain, NEAR, and the Canton Network. The Canton deployment enables privacy-preserving transactions where only the issuer and holder know the details of collateral movements.

The underlying fund, Hashnote International Short Duration Yield Fund Ltd., invests primarily in overnight reverse repurchase agreements and short-term U.S. Treasury bills. This allocation minimizes duration risk while maintaining high liquidity for redemptions.

Circle International Bermuda Limited, regulated by the Bermuda Monetary Authority, serves as the token administrator responsible for managing USYC on behalf of the fund.

Bank of New York Mellon provides custody for the underlying assets in a segregated account, offering institutional-grade safekeeping that separates USYC from the counterparty risks common in crypto yield products.

How USYC Generates and Distributes Yield

The yield mechanism differs fundamentally from competitors like BlackRock's BUIDL (BUIDL). While BUIDL maintains a fixed $1 token price and pays yield as newly minted tokens at month-end, USYC accrues yield through continuous price appreciation.

The fund's in-house fixed income team deploys assets primarily in reverse repo, ensuring maximum liquidity and minimal duration risk. An oracle feed streams real-time token balance, yield, and price data, providing transparency that traditional money market funds cannot match.

Current 30-day annualized yield hovers around 3.1%, tracking the short-term Fed rate minus the 10% management fee retained by Circle. The yield fluctuates with Federal Reserve policy, meaning investors face interest rate sensitivity despite the "risk-free" underlying assets.

Tokenomics and Supply Dynamics

USYC operates without a maximum supply cap. New tokens are minted when investors subscribe to the fund via USDC, and tokens are burned upon redemption. The circulating supply fluctuates based on net flows, recently ranging between 1.2 billion and 1.5 billion tokens.

Subscriptions settle atomically and instantly on-chain. Redemptions below the instant-redemption capacity settle within one block time, while larger redemptions complete on T+0 or T+1, with an optional fee available to remove the instant redemption cap entirely.

The fee structure includes 0% management fees (the fund retains yield rather than charging a percentage of AUM) and a 10% performance fee on generated returns. Service and redemption fees are disclosed upfront in fund documentation.

All transactions occur in USDC, creating tight integration between Circle's stablecoin and its yield-bearing product. This fungibility allows institutions to move between tokenized cash and Treasuries in near real-time.

Institutional Infrastructure and Integration Depth

Deribit, the dominant crypto options exchange, introduced USYC as cross-margin collateral in October 2024. Traders can use USYC to back positions in BTC (BTC), ETH (ETH), USDC, and USDT (USDT) derivatives while the collateral continues earning yield.

A 10% haircut applies to USYC in Deribit's cross-collateral system, meaning $10,637 in USYC provides the margin equivalent of roughly $9,573. Withdrawals from Deribit require wallet addresses whitelisted directly with Hashnote through a rigorous KYC process.

Fireblocks deployed USYC via its Off Exchange solution, marking the first time a major derivatives exchange supported a regulated tokenized money market fund as collateral through an institutional custody platform.

Binance announced in July 2025 that institutional clients could use USYC as off-exchange collateral for derivatives trading. Custody options include Binance Banking Triparty with authorized banks or Ceffu, Binance's institutional custody partner.

The Binance integration accelerated USYC growth dramatically. The fund expanded from $242 million in July 2025 to over $1.3 billion by December, with approximately $1.22 billion residing on BNB Chain.

Concentration Risk and Distribution Concerns

The rapid growth masks a significant structural vulnerability. Arkham Intelligence data shows Binance holds approximately $1.43 billion of USYC, representing 94% of total supply as of January 2025. Previous on-chain records showed Usual Protocol holding a similar concentration before diversifying reserves in late 2024.

Holder count remains extremely thin at roughly 53 addresses, with trailing 30-day active addresses in single digits. Monthly transfer counts hover around 25, reflecting institutional rather than retail activity patterns.

This concentration creates dependency risk on single counterparty relationships.

If Binance were to redeem its position, the fund would face massive outflows requiring rapid liquidation of Treasury holdings. BlackRock's BUIDL maintains a more diversified base with 103 distinct holders, though its top 10 also account for over 95% of total value.

The Usual Protocol served as USYC's primary holder before the Binance relationship, with 97% of the USYC money market fund backing the USD0 stablecoin. Usual has since diversified its reserves to include M by M^0, USDtb by Ethena, BlackRock's BUIDL, and Ondo's OUSG.

Regulatory Framework and Geographic Restrictions

USYC operates under a multi-jurisdictional regulatory structure. Circle International Bermuda Limited holds a Bermuda Monetary Authority license as a digital asset business. The underlying fund is registered as a mutual fund with the Cayman Islands Monetary Authority.

The product is explicitly unavailable to U.S. Persons as defined under the Securities Act of 1933, meaning U.S. citizens, residents, and entities cannot legally hold USYC regardless of where they access it.

Hashnote Management LLC maintains registration with the Commodity Futures Trading Commission as a Commodity Pool Operator for separate U.S. investor products, but USYC specifically targets non-U.S. institutional and high-net-worth investors who meet qualified investor criteria.

KYC/AML requirements apply to all participants. Eligible entities must complete verification and whitelist their wallet addresses before interacting with USYC smart contracts.

Competitive Positioning Against BUIDL and Others

The tokenized Treasury market features six dominant products controlling 88% of total issuance. BlackRock's BUIDL leads at approximately $1.7 billion, with USYC briefly overtaking it in late January 2025 before positions shifted.

Franklin Templeton's BENJI holds around $880 million, followed by Ondo's USDY at $860 million, Ondo's OUSG at $770 million, and WisdomTree's WTGXX at $737 million. Superstate's USTB rounds out major competitors with $622 million.

USYC differentiates through its appreciation model versus BUIDL's dividend distribution, but this creates accounting complexity for some institutional users accustomed to traditional money market fund structures.

Minimum investment thresholds vary dramatically. USYC on Binance requires $100,000 minimum for institutional minting, while BUIDL demands $5 million, potentially explaining USYC's faster growth among mid-tier institutional traders.

Risks, Limitations, and Structural Vulnerabilities

Smart contract risk persists despite external audits. The proxy pattern allowing upgrades introduces theoretical attack vectors if the upgrade mechanism were compromised.

Regulatory change could disrupt operations significantly.

The Bermuda and Cayman structures provide current clarity, but evolving U.S. SEC enforcement priorities or international regulatory coordination could alter the compliance landscape. Circle's pending IPO may also affect product prioritization.

Interest rate sensitivity means USYC yields decline when the Federal Reserve cuts rates. The current 3% annualized return depends entirely on short-term Treasury yields remaining elevated.

Liquidity constraints exist for large redemptions. While smaller amounts settle instantly, significant withdrawals face T+0 to T+1 settlement timelines, potentially creating mismatch with 24/7 crypto market volatility.

The permissioned nature limits composability. Unlike permissionless DeFi tokens, USYC requires wallet whitelisting, restricting integration into automated yield strategies without institutional-grade compliance infrastructure.

Centralization concerns extend beyond holder concentration. Critics note that Circle controls issuance, the upgrade mechanism, and whitelisting decisions, contradicting blockchain's decentralization premise.

Pathway to Continued Relevance

Circle's roadmap includes native USDC support on Canton Network, enabling private transactions and 24/7/365 convertibility between USDC and USYC for traditional finance applications.

Cumberland, the DRW-affiliated market maker, committed to expanding institutional-grade liquidity and settlement capabilities for both USDC and USYC. This support from one of crypto's largest OTC liquidity providers should facilitate institutional adoption.

Multi-chain expansion continues with deployments across Ethereum, Solana, Base, BNB Chain, NEAR, and Canton, each targeting different user bases and use cases.

The tokenized Treasury market projects to reach between $12.5 trillion and $23.4 trillion by 2033 according to BCG-Ripple estimates, though current $10 billion valuations represent roughly 0.04% of the $28 trillion U.S. Treasury market.

USYC's success depends on diversifying its holder base beyond single-counterparty concentration, maintaining regulatory compliance across expanding jurisdictions, and navigating competition from both crypto-native issuers and traditional asset managers entering the tokenization space.

The product represents a meaningful bridge between traditional money markets and blockchain infrastructure, but its institutional-only access, geographic restrictions, and concentrated holder base limit near-term mass adoption potential.