Circle’s USDC Loses its Dollar Peg. Details
- USDC lost its peg to the dollar shortly after SVB was shut down.
- Circle reportedly has $3.3 billion of its reserves in Silicon Valley Bank.
- Crypto users have called for a swift response from the government to prevent further damage from the situation.
Hours after news emerged that Silicon Valley Bank (SVB) had collapsed, USDC, a stablecoin, lost over 10% of its value and traded at $0.8774. Stablecoins are usually pegged 1:1 to fiat currencies. However, USDC lost its peg following reports that its parent company, Circle, was exposed to the failed SVB.
There have been questions about the possible consequences of SVB’s collapse, and a Circle executive foresees a wilder implication in the business, banking, and entrepreneur sectors if the federal government fails to implement strategies to balance the situation. Dante Disparte, the Chief Strategy Officer and Head of Global Policy for Circle, warned that SVB is relevant to the US economy, and therefore, authorities need to react adequately to the situation.
Sharing insight into Circle’s exposure to Silicon Valley Bank, Disparte said,
As with Silvergate, our teams have worked at speed to limit any exposure to banks. This includes a wire transfer request made before SVB’s FDIC receivership. A $3.3 billion cash exposure remains, but we follow state and federal guidance.
According to reports, Circle attempted to withdraw $3.3 billion of its $40 billion reserve from SVB on Thursday, March 9. However, the wire transfer was declined due to an incomplete transfer process. So, the stablecoin issuer has $3.3 billion of its reserves with the doomed SVB bank.
Interestingly, crypto firms such as Coinbase and Jump Trading redeemed about $850 million and $138 million USDC, respectively, to minimize exposure. Coinbase, which issues USDC through a partnership with Circle, also tweeted that it will “temporarily” pause USDC conversions while banks are closed over the weekend.
Furthermore, regulators in California took control of SVB and forced its closure on Friday. The Federal Deposit Insurance Corporation (FIDC) insures SVB accounts up to $250,000, which might leave Circle and other depositors out of the picture.
SVB’s problems are said to have begun last year when the US Federal Reserve started raising interest rates, erasing the value of its mortgage bonds and US Treasury. Interestingly, Jerome Powell, the head of the Fed, said this week that he expects interest rates to rise this year beyond what the market anticipates.
Is USDC Headed for a Fall?
Circle has stayed somewhat silent amid concerns for its future. However, the stablecoin issuer tweeted on Friday that “Circle and USDC continue to operate normally.” The situation with SVB is a far cry from what had been expected.
Circle previously announced plans to increase its staff strength by 25%. The news came as a surprise at the time. Circle’s chief financial officer, Jeremy Fox-Geen also revealed Circle’s plans to go public if market conditions were favorable.
Only time will tell if Circle will join the list of crypto firms to suffer unforeseen collapses like Terra and FTX.
Lawrence has covered some exciting stories in his career as a journalist, he finds blockchain-related stories very intriguing. He believes Web3 will change the world and wants everyone to be a part of it.
