As the fallout from Silicon Valley Bank’s failure spread, Circle Internet Financial’s USDC stablecoin, the second-largest stablecoin with a $42 billion market cap, has depegged from its 1 dollar peg
The USDC stablecoin went as low as $0.88, the pair’s lowest price since April 2021. This occurred shortly after USD Coin (USDC) issuer Circle disclosed that it was unable to withdraw $3.3 billion from Silicon Valley Bank (SVB).
Upon the news that SVB was ready to cease operations, Circle initiated a wire transfer on March 9 2023 to remove its funds from the insured bank. However, on the 11th of March 2023, two days later, Circle announced that $3.3 billion of the USDC reserves were still with SVB and that the wire transfers had not been fully handled. In response to this revelation, the price of USDC plummeted.
USDC and Silicon Valley Bank
As of Jan. 17, according to the company’s most recent attestation, stablecoin issuer Circle, based in the United States, has some of the cash reserves for its USDC stablecoin at Silicon Valley Bank. The second-largest stablecoin on the market, USDC is fully backed by government bonds and cash-like assets and had a $43 billion circulation supply.
The company stored about $9.88 billion in cash deposited at regulated banks to support USDC’s value, according to Circle’s January reserve report. As of March 10, 2023, cash deposits in the reserves totalled $11.1 billion, according to Circle’s website.
The California-based bank, Silicon Valley Bank (SVB) which has now been clamped down by regulators on Friday, was one of USDC’s banking partners.
The spokesperson for Circle revealed on Friday the 10th of March 2023 that SVB held about 25% of USDC’s cash reserve. He further disclosed that Circle “await clarity on how the FDIC receivership of Silicon Valley Bank will impact its depositors, Circle and USDC continue to operate normally” adding that SBV is among the six banks that manage Circle’s cash reserve.
Circle’s Response
As a means of damage control and to control the flying narratives, Circle took to Twitter, asserting that Circle and USDC will continue to operate normally. Corroborating this, the CEO of an online investment platform BnkToTheFuture, Simon Dixon, tweeted that Circle’s Chief Executive Jeremy Allaire has revealed that the firm has “most of their cash is in BNY Mellon,” adding a screenshot from March 2, 2023. BnkToTheFuture is among Circle’s investors and shareholders.
In assessing the ongoing situation to determine the next line of action, Coinbase has paused conversions between the US dollars and USDC. Robinhood has also suspended USDC trading and deposits.
