Circle, the issuer of the USDC stablecoin has confirmed that $3.3 billion of its reserve held in cash deposit is stuck with one of its banking partners, the embattled Silicon Valley Bank (SVB).
According to a tweet thread, the sum represents about 8% of the total reserve backing the USDC. Despite its level of exposure, the stablecoin issuer has maintained that it will continue carrying out its operations normally while he awaits how the collapsed bank’s receivership will affect its depositors.
Other banking partners of the stablecoin issuer include New York Community Bank, Citizens Trust Bank, and Signature Bank amongst others Recall that Circle with the help of BlackRock is looking to fully transition to the Federal Reserve’s reverse-repo program by March 2023.
Circle’s USDC Loses Dollar Pegging
On account of the confirmation that a portion of its reserve is held in the failed bank, several investors rushed to exit their USDC holdings. Many of these investors swapped their USDC for alternative stablecoin like Tether’s USDT or into fiat currencies. A total of over $1 billion has been redeemed so far.
This led to USDC’s biggest de-pegging since its creation in 2018. The second largest stablecoin, lost its 1:1 pegging to the US dollar falling as low as $0.8 in the early hours of the morning and currently sits at $0.9 according to CoinMarketCap.
Meanwhile, Dante Disparte, the chief strategy officer at Circle says the firm is “currently protecting USDC from a Black swan failure in the US banking system. Dante further added that the failure of SVB – without a federal rescue plan will have a broader impact on businesses and entrepreneurs as the bank is one of the biggest lenders and a major player in the US economy.
Earlier in the week state regulators citing inadequate liquidity and insolvency, took possession of Silicon Valley Bank.
As of Dec 31, 2022, the state-chartered bank had over $175 billion in deposits which are federally insured by the Federal Deposit Insurance Corporation. SVB collapse which is the second largest bank failure since 2008, follows Silvergate, another major player that announced that it is voluntarily shutting down its operations and liquidating its bank.