2023-3-13 18:21 |
Circle Internet Financial has promised to resume normal USDC liquidity operations from Monday, enabling the redemption of the troubled stablecoin at 1:1 with the United States dollar. This is after the company devised a plan to use its “corporate resources” to cover any shortfall in its reserves following the sudden closure of the Silicon Valley Bank (SVB).
Circle Says USDC Will Remain Redeemable 1 For 1 With U.S. DollarCircle intends to use corporate funds to fill the gap, including external capital on the back of Silicon Valley Bank’s shutdown.
On Friday, Circle disclosed that $3.3 billion of the cash reserves backing US Dollar Coin (USDC), the second-largest stablecoin by market cap, were stuck at the shuttered SVB. The company is “hopeful” that the Federal Deposit Insurance Corporation (FDIC) will get a quick buyer for SVB that will ensure that “all depositors are made whole,” according to a statement.
But in the case that Circle does not receive 100% of the $3.3 billion held at SVB, the stablecoin issuer has assured that it will cover the shortfall “using corporate resources, involving external capital if necessary.”
Sharing an Update on USDC and Silicon Valley Bank. https://t.co/Ug3qpot8sJ
— Jeremy Allaire (@jerallaire) March 11, 2023The assurance came after crypto investors became panicky after USDC, which is designed to remain always priced at $1, fell as low as $0.84 on March 11. The last time USDC saw these levels was in May 2019, when it registered an all-time low of $0.89.The stablecoin veered wildly from the dollar peg after Circle confirmed exposure to the now-failed bank.
In the announcement, Circle posited that SVB is “a venerable and trusted partner to the US innovation economy,” which suffered a “classic bank run, much like those we saw during the financial crisis in 2008. Few traditional banks have sufficient liquidity to withstand such a run.”
Circle Tried To Move Its Assets Out Before SVB’s MeltdownThe USDC issuer further disclosed it had tried to transfer its assets from SVB to its other banking partners right before the bank went under and that the transaction may settle on Monday when normal operations at U.S. banks are expected to resume.
SVB was the bank of choice for the majority of venture-backed tech startups. The bank was abruptly closed Friday by California’s financial regulator. SVB’s closure comes just days after Silvergate, a California-headquartered crypto-friendly bank, wound down operations. Notably, Silveragate’s ties with crypto were far tighter than SVB’s.
Still, crypto community members were surprised to learn that Circle was caught in the crosshairs of SVB’s demise. Meanwhile, Coinbase and Binance have temporarily suspended USDC conversions until banking resumes on Monday.
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