USD Coin (USDC) issuer Circle plans to use “company resources” to cover the shortfall in reserves following the closure of Silicon Valley Bank, the company said in a March 11 statement.
According to Circle, USDC liquidity operations will “continue as normal when banks open Monday morning in the United States,” enabling the redemption of USDC at 1:1 with the US dollar.
The announcement comes after the stablecoin lost $1 on March 11 to trade as high as $0.87 before slowly re-pegging at $0.98 at the time of publication. The stablecoin lost a peg after the disclosure of $3.3 billion from Silicon Valley Bank’s Circle reserves.
Silicon Valley is one of the largest lenders in the United States and a major player for venture-backed companies. The bank was shut down on March 10 by the California Department of Financial Protection and Innovation, raising fears about its future. The Federal Deposit Insurance Corporation is appointed as a receiver to protect insured deposits.
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— Jeremy Allaire (@jerallaire) March 11, 2023
In its statement, Circle emphasized that Silicon Valley is “a respected and reliable partner for the US innovation economy,” which is experiencing “a classic bank run, as we saw during the financial crisis in 2008. Few traditional banks have enough liquidity to withstand such a run .”
SVB suffered significant losses which led to a situation where it was forced to sell long-held assets to meet the ransom demand. The settlement period in these assets led to a short-term liquidity crisis, which prompted the FDIC to step in to regulate the bank yesterday. The fate of SVB was decided this weekend by the FDIC and it is our hope that we will find a solution that protects our customers’ assets 100%.
USDC is the second largest stablecoin, with a market cap of more than $42 billion as of January 31st, making it a guarantee for much of the stablecoin ecosystem. The depeg has a direct impact on the rest of the stablecoin ecosystem, Cointelegraph reported today.
The relief efforts came less than 72 hours after the collapse of American technology bank Silicon Valley Bank (SVB), Cointelegraph reported. According to Bob Elliot, chief investment officer of Unlimited Funds, “the big banks are actively working on the svb business.” The US Federal Deposit Insurance Corporation (FDIC) will cover 95% of uninsured deposits for the acquirer, and that “50pct uninsured paid out next week.”
According to Circle’s latest audit report from January, USDC is 100% backed by cash and US Treasuries, with nearly $8.6 billion held by US banks on January 31, representing approximately 20% of its reserves. Another $33 billion in reserves are held in U.S. Treasurys managed by BlackRock through the Reserve Circle Fund, which is registered as a government money market fund and held by BNY Mellon. Circle’s January report was reviewed and certified by Big Four accounting firm Deloitte.