Following Silicon Valley Bank’s (SVB) closure, Circle intends to use “company resources” to make up the difference in its reserves.
As stated by Circle, USDC liquidity operations would “continue as normal” on Monday morning when banks reopen in the United States, allowing for 1:1 USDC redemption.
The statement followed the stablecoin’s loss of its $1 peg on March 11 and subsequent decline to a price of $0.87 before gradually repegging to its current price of $0.98. With the revelation that $3.3 billion of Circle’s reserve was stored at Silicon Valley Bank, the stablecoin lost its peg.
One of the largest lenders in the US, Silicon Valley Bank is a significant investor in venture-backed businesses. The California Department of Financial Protection and Innovation closed the bank on March 10, which increased worries about its future. To safeguard insured deposits, the Federal Deposit Insurance Corporation was chosen as the receiver.
SVB, which saw a “typical bank run, much like those we saw during the financial crisis in 2008,” was described as “a venerable and trusted partner to the American innovation economy” by Circle.
The liquidity of most traditional banks is insufficient to survive such a run.SVB had huge losses, which caused them to sell long-duration assets to satisfy redemption demand.
Due to a short-term liquidity crisis brought on by the settlement time for these assets, the FDIC took over management of the bank yesterday. The FDIC will make a decision about SVB’s future this weekend, and we are hoping they will come up with a plan that completely safeguards customer assets.
With a market cap of approximately $42 billion as of January 31, USDC, the second-largest stablecoin, serves as collateral for numerous stablecoin ecosystems.
Its depeg quickly had an impact on other stablecoin ecosystems, as observed. Less than 72 hours after the American tech bank’s collapse, relief operations were in full swing.
The chief investment officer of Unlimited Funds, Bob Elliot, claims that “major banks actively working on buying svb firm.” 95% of uninsured deposits made to the acquirer will be covered by the U.S. Federal Deposit Insurance Corporation, and “50% of uninsured paid out next week.”
According to Circle’s most recent audit report from January, USDC is entirely backed by cash and U.S. Treasury bonds, with nearly $8.6 billion, or about 20% of its reserves, being held by American banks as of January 31.
An additional $33 billion of its reserves are kept in Treasury securities managed by BlackRock through the Circle Reserve Fund, which is recognized as a government money market fund and is kept in custody by BNY Mellon. Circle’s January report was examined and approved by Big Four accounting firm Deloitte.
