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USDC crisis averted? Federal regulators reassure depositors at Silicon Valley banks, guaranteeing access to funds


USDC crisis averted? Federal regulators reassure depositors at Silicon Valley banks, guaranteeing access to funds

Source: Circle

The popular stablecoin USDC has returned to its fixed price of $1 after US regulators ensured that Silicon Valley Bank (SVB) depositors can access their money today.

Government assurance means all Silicon Valley Bank depositors will be cured, despite the bank collapsing and investors’ money disappearing. The USDC Circle issuer was among the bank’s depositors and stood to lose an estimated $3.3 billion in the bank’s collapse.

Circle’s total reserves for USDC at the time were approximately $40 billion, but the loss of SVB was still large enough to cause a temporary unpegging of USDC. On Saturday and Sunday, USDC traded for long stretches in the $0.90-$0.95 area.

USDC price for the last 7 days. Source: CoinGecko

By Monday morning, USDC had regained its footing after Circle promised that all USDC tokens in circulation could still be exchanged for $1, even if the company would need to fund it with external capital.

“[Circle] will support the USDC and cover any shortfalls using company resources, involving external capital as needed,” the company said in its statement.

DAI detaches… and recovers

Alongside USDC’s recovery, decentralized stablecoin DAI, which is partly backed by USDC, also gained ground on Sunday and Monday. The dollar-pegged token fell with the USDC on Saturday to lows around the $0.90 level, but has since rallied towards the $1 level.

At the time of writing, DAI was trading at $0.999, up 3.2% in the past 24 hours, according to data from CoinGecko.

DAI price for 7 days. Source: CoinGecko

Regulators step in

The recovery of the two stablecoins came after US regulators intervened on Sunday and promised that the bank’s depositors would have access to all their funds, despite the banks being closed. This helped the market regain confidence in the coins, bringing them back to their fixed price of $1 at press time.

The promise took the form of a joint statement by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). The three regulators said they expected the move to “protect the U.S. economy by bolstering public confidence in our banking system.”

Fed makes ‘additional funding’ available

Later, a separate statement from the Federal Reserve said the central bank will make “additional funding” available to banks to ensure they have the capacity to honor withdrawals.

“The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year to banks, savings associations, credit unions and others. eligible depository institutions pledging U.S. Treasury bills, agency debt and mortgage-backed securities, and other eligible assets as collateral,” the Fed statement read.

Circle “courageous” to see government action

In a comment posted on Twitter, Circle CEO Jeremy Allaire said he was “reassured” to see the government taking action. He noted that 100% of deposits at SVB are secure and available, and said his company would not transfer its deposit in SVB to BNY Mellon.

“We are committed to building robust, automated USDC settlement and reserve operations with the highest quality and transparency,” the CEO of Circle added.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.