After the stunning collapse of Silicon Valley Bank, questions swirled around the light of one of the top crypto companies, Circle, the issuer of the second largest stablecoin, USDC.
In a March attestation, Circle had disclosed that a portion of its $9.88 million cash reserve was held in SVB, although it did not disclose the total amount. After SVB’s collapse, withdrawals from USDC mounted, with crypto intelligence platform Nansen reporting more than $1 billion in redemptions from stablecoins since SVB’s demise. USDC market capitalization is only $40 billion.
While USDC lost $1 on different crypto exchanges amid the withdrawal, Circle sought to instill confidence, with the company tweeting at 6:50 p.m. ET that it would continue to operate as normal, indicating that SVB was one of six banking partners are used to 25% of the reserves that remain in cash, although they still do not reveal the amount held in SVB.
Silicon Valley Bank is one of six banking partners that Circle uses to manage its ~25% share of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will affect depositors, Circle & USDC continue to operate as normal.https://t.co/NU82jnajjY
– Circle (@circle) March 10, 2023
As investors continue to exit USDC, Binance declare will temporarily suspend the automatic conversion policy of USDC to stablecoin BUSD, citing “market conditions” and describing the action as a “normal risk management procedural step.”
At 10:11 PM ET, Circle gave more clarity, tweeting that $3.3 billion-or around 8% of reserves remain in SVB, revealing that the wire started there to remove the balance from the bank has not been processed.
Dante Disparte, Circle’s chief strategy officer, tweeted shortly after Circle protected USDC “from a black swan failure in the banking system.”
@circular now protect #USDC of black swan failures in the US banking system. @SVB_Financial is a critical bank in the US economy and its failure – without a Federal rescue plan – will have wider implications for business, banking and entrepreneurs. https://t.co/CYi6Z26ngH
— Dante Disparte (@ddisparte) March 11, 2023
Meanwhile, the USDC peg continues to fall, with the token trade at $0.92 against tether on Kraken at 10:40 a.m. ET. Coinbase declare it will temporarily pause the conversion from USDC to USD on the weekend when the banks are closed, adding that during the period of heightened activity, the conversion depends on the transfer of USD from banks that clear during normal banking hours. Coinbase worked with Circle to create USDC, issuing tokens in 2018.
After the FDIC placed SVB into receivership there, the weekend will prove an uncertain time as the financial world waits to see if the US government can find a buyer for the failed bank or will backstop losses, with insured deposits only backed up. for $250,000. Former Treasury Secretary Lawrence Summers asked depositors to pay back in full.
While the crypto industry seems safe from SVB contagion at the moment, with much of the sector moving to Signature Bank and other partners following Silvergate’s voluntary liquidation on Wednesday, Circle may prove the exception. The company is a fundamental cog in the crypto ecosystem, with USDC becoming an important cornerstone in crypto for global investors.
Some onlookers expressed confidence that Circle would weather the storm. Investor Adam Cochran tweeted Circle could cover the $3.3 billion gap from interest collected from reserves, part sales, or other venture debt.
“It’s not a problem in my mind,” he wrote.
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