The second-largest stablecoin by market value, USD Coin (USDC), lost its dollar peg and fell to an all-time low of $0.88 on Saturday when Circle, the US business that created the coin, disclosed that some of the assets supporting it were held at Silicon Valley Bank (SVB).
The Federal Deposit Insurance Corporation (FDIC) recently took control of the Silicon Valley Bank (SVB), which was shut down and placed under the direct supervision of the regulator on Friday. As a result, depositors won’t be able to recover their money until at least this week.
While this was going on, Circle claimed in a tweet on Friday that it had $3.3 billion, or about 8% of its $40 billion in USDC reserves, in the bank. This caused investors to withdraw their money from the stablecoin, which prompted its price to drop even lower than it had ever been during the market pressure that followed the FTX fiasco in November 2022.
2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
— Circle (@circle) March 11, 2023
Three crypto-friendly banks went dark in four days
The issues at Silicon Valley Bank and the crypto-focused Silvergate, which last week announced intentions to wind down operations and voluntarily liquidate, have traders on high alert for signs of contagion in the banking and crypto sectors, and beyond.
Another crypto-friendly bank, Signature Bank, was closed down by New York regulators on March 12 in conjunction with the United States Federal Deposit Insurance Corporation to “protect the U.S. economy,” as they asserted the bank posed a “systemic risk.”
In brief, three crypto-friendly banks ceased operations in just four days, signaling the biggest U.S. bank failure since the 2008 financial crisis, turbulence in the worldwide markets, and the loss of billions of dollars belonging to businesses and investors.
Although Circle, the issuer of USDC, maintained that it has no exposure to Signature Bank, the company could no longer mint or redeem USDC through Signature’s Signet product.
Signet is a blockchain-based real-time payments solution that enables commercial crypto clients to make real-time currency payments. It’s designed to work around the clock.
Circle’s USDC on the way to parity
The $3.3 billion cash reserve issue faced by Circle Internet Financial, however, appeared to be resolved on Sunday after federal regulators promised to quickly restore funds to Silicon Valley Bank (SVB) depositors.
Jeremy Allaire, the co-founder, and CEO of Circle, also announced on Twitter on Sunday that all deposits from SVB are safe and will be available today, Monday.
Update thread on USDC
We were heartened to see the US government and financial regulators take crucial steps to mitigate risks extending from the fractional banking system.
100% of deposits from SVB are secure and will be available at banking open tomorrow.
— Jeremy Allaire (@jerallaire) March 12, 2023
The cryptocurrency firm said that in the event the bank does not return 100% of deposits, it will cover any shortfall using corporate resources, involving external capital if needed.
“We’ve long advocated for full-reserve digital currency banking that insulates our base layer of internet money and payment systems from fractional reserve banking risk,” Jeremy Allaire affirmed.
He added that the entire USDC reserve pool is secure and safe and that we will finish transferring all of the remaining SVB funds to BNY Mellon, a rival American investment banking services holding corporation with its headquarters in New York City.
By the time this article was published, USDC was trading on Coinmarketcap at about $0.9908, putting it a step closer to recovering its peg to the US dollar.